News Archives: August, 2013

ICI's latest "Trends in Mutual Fund Investing, July 2013" shows money fund assets increased by $26.8 billion in July, after decreasing $16.9 billion in June and rising $28.3 billion in May. Money funds assets fell in all of the first four months of 2013 too (down $24.5 billion in April, $57.6 billion in March, $31.7 billion in February, and $9.1 billion in January). YTD through 7/31, ICI shows money fund assets down by $81.2 billion, or 3.0%. The Institute's bond fund totals showed asset declines moderating, down just $6.4 billion, after bond fund assets declined by a record $143.1 billion in June. (Note that assets include gains and losses and differ from "flows".) ICI also released its latest "Month-End Portfolio Holdings of Taxable Money Funds," which confirmed a rebound in repo and a jump in Treasury and CP holdings. (See Crane Data's August 12 News, "Latest Portfolio Holdings Show Jump in Treasuries, CP, Repo Rebound.") Money fund assets are up strongly in July though. Month-to-date in August, our MFI Daily shows recent asset gains continuing; assets have risen by $31.1 billion, or 1.3%, through 8/28.

ICI's July "Trends" says, "The combined assets of the nation's mutual funds increased by $422.3 billion, or 3.1 percent, to $14.064 trillion in July, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.... Bond funds had an outflow of $16.70 billion in July, compared with an outflow of $59.94 billion in June."

It adds, "Money market funds had an inflow of $26.64 billion in July, compared with an outflow of $17.12 billion in June. Funds offered primarily to institutions had an inflow of $30.46 billion. Funds offered primarily to individuals had an outflow of $4.82 billion." ICI's "Liquid Assets of Stock Mutual Funds" rose from a near record low at 3.7% to 3.9%, showing stock funds hold thin but growing buckets of cash.

The ICI's most recent "Money Market Mutual Fund" weekly report shows money fund assets rising for the 4th week in a row. It says, "Total money market mutual fund assets increased by $6.46 billion to $2.644 trillion for the week ended Wednesday, August 28, the Investment Company Institute reported today. Taxable government funds increased by $1.60 billion, taxable non-government funds increased by $6.93 billion, and tax-exempt funds decreased by $2.08 billion." Year-to-date, ICI's weekly series shows assets down by $61 billion, or 2.2%, through Aug. 28.

ICI's Portfolio Holdings for July 2013 show that Repos rebounded by $32.0 billion, or 7.0% (after a quarter-end $65.6 billion plunge in June) to $490.9 billion (20.9% of assets). The increase in repos, which traditionally rebound after quarter-ends, put them back into first place among segments of taxable money fund portfolio holdings (behind CDs). Holdings of Certificates of Deposits, now the 2nd largest position, dropped by $11.3 billion (the second month in a row) to $471.7 billion (20.1%). Treasury Bills & Securities, the third largest segment, increased by $7.1 billion to $464.9 billion (19.8%).

Commercial Paper, which jumped by $18.9 billion, or 5.2%, remained the fourth largest segment ahead of U.S. Government Agency Securities; CP holdings totaled $382.3 billion (16.3% of assets). Agencies fell by $6.5 billion to $345.0 billion (14.7% of taxable assets). Notes (including Corporate and Bank) rose by $5.3 billion to $97.7 billion (4.2% of assets), and Other holdings fell by $6.0 billion to $84.0 billion (3.6%).

The Number of Accounts Outstanding in ICI's Holdings series for taxable money funds decreased by 38,331 to 24.616 million, while the Number of Funds fell by 4 to 389. The Average Maturity of Portfolios shortened by one day to 49 days in July after rising one day in June and remaining flat the 4 previous months. Over the past year, WAMs of Taxable money funds have lengthened by 4 days.

Note that Crane Data publishes daily asset totals via our Money Fund Intelligence Daily and monthly asset totals via our Money Fund Intelligence XLS. ICI publishes a weekly "Money Market Mutual Fund Assets" summary, as well as the above-referenced monthly asset totals. Each data set and time series contains slight differences among the tracked universes of money market mutual funds. Crane also publishes monthly Money Fund Portfolio Holdings and calculates a monthly Portfolio Composition totals from these (we recently updated our August MFI XLS to reflect the 7/31 composition data and maturity breakouts), while ICI collects a separate monthly Composition series.

While there haven't been many new "Comments on Proposed Rule: Money Market Fund Reform; Amendments to Form PF" of substance lately, we did notice some recent additions to the "Meetings with SEC Officials section at the bottom of the comment page. The new additions include two recent meetings of Fidelity Investments, which is by far the largest manager of money market mutual funds with over $419.5 billion (17.0%) in assets, with SEC representatives. The earlier meeting contains a Powerpoint which focuses on Municipal Money Market Funds, and the data builds the case for why they should be excluded from a floating NAV or radical regulatory change. (See yesterday's "News" too.)

The first notice, "Memorandum from the Division of Investment Management regarding an August 27, 2013, meeting with representatives of Fidelity," contains little information other than attendees (like most of these notices). It says, "On August 27, 2013, Norman Champ, Director, Division of Investment Management (IM), David Grim, Deputy Director, IM, Diane Blizzard, Associate Director, IM, and Sarah ten Siethoff, Senior Special Counsel, IM, met with Nancy Prior (President, Money Markets), Kevin Meagher (SVP, Deputy General Counsel), and James Febeo (SVP, Head of Regulatory Affairs), representatives of Fidelity. The representatives discussed the Commission's proposal on money market fund reform."

As we mentioned, the earlier meeting, though, contains a Powerpoint showing why Municipal, or Tax-Exempt money funds, should be exempt from the SEC's onerous proposals. Entitled, "Memorandum from the Division of Investment Management regarding an August 16, 2013, meeting with representatives of Fidelity," explains, "On August 16, 2013, Craig Lewis, Director, Division of Economic and Risk Analysis (DERA), Woodrow Johnson of DERA, Dan Hiltgen of DERA, and Sarah ten Siethoff, Senior Special Counsel, Division of Investment Management met with Nancy Prior (President, Money Markets), Kevin Meagher (SVP, Deputy General Counsel), Sean Verbout (Managing Director of Quantitative Research) and James Febeo (SVP, Head of Regulatory Affairs), representatives of Fidelity. The representatives discussed the Commission's proposal on money market fund reform and the attached slides."

Their presentation on "Money Market Mutual Fund Reform," says, "Municipal MMFs Have Significant Liquidity." It explains that among "Industry Municipal Money Market Funds, the Percent of Holdings in 7-Days or Less (Maturity)" totaled 80% for National funds and 77% for State. They also point out that "Municipal MMFs Have Low Interest Rate Risk," showing a chart with WAMs (weighted average maturities) averaging below 35 days.

Fidelity's slides also show that the "Size of Municipal MMFs is Not Systemic." They point out that Municipal MMFs, as a percent of the total MMF Industry, average just 10.5%. (They use Crane Data info and show Municipal MMFs totaling $256 billion of $2.430 trillion.) The slides also point out via charts and data that "Detroit Events Did Not Destabilize Municipal MMFs," with assets and "shadow" NAVs remaining stable, "Municipal MMFs Did Not See Significant Redemptions During 2008 Financial Crisis," and "Municipal MMFs Did Not See Significant Redemptions During 2011 Market Uncertainty."

The presentation adds that "Municipal MMFs Provide Low-Cost Financing for States, Cities and Non-Profits," and that "Money Market Mutual Funds Are Significant Buyers of Short-Term Securities." The latter table shows that money market funds own 39% of Agency Securities, 46% of Commercial Paper, 28% of Treasuries, 30% of Repurchase Agreements, and 65% of Tax-Exempt VRDNs/TOBs. The footnote here explains, "Notes: 1 Short-term securities include money market instruments as well as longer-term securities with a remaining maturity of 1-year or less. Agency securities include debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Sources: Bloomberg, New York Federal Reserve, U. S. Treasury Department, SIFMA, iMoneyNet, Crane Data as of 06/30/13 except VRDNs/TOBs as of 12/31/12."

Finally, Fidelity's slides say, "State and Local Governments Issue Significant Notes: Ten Year Total Equals $520 Billion." They explain, "State and local governments rely on short term money market borrowing to pay government employees and fund other operating expenses for cash flow management, and to finance capital projects during construction periods prior to issuing long term bonds." They cite the "Potential Impact of MMF Reform on Municipal Issuers," and show minimal "Security Sales During Week Following Lehman Bankruptcy (September 15, 2008 - September 19, 2008)."

Yesterday, the GFOA, ICI, and Chamber of Commerce hosted a webinar entitled, "Money Market Fund Regulation: The Impact on Municipal Finance," which discussed the potential and myriad impacts of the SEC's proposed changes on municipal investors and issuers. The session featured Kathryn Hewitt, Treasurer, Harford County, MD, Jane Heinrichs, Senior Associate Counsel, Investment Company Institute, and Alice Joe, Executive Director, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce. The GFOA's supporting materials, entitled, "SEC Money Market Proposal Will Harm State and Local Governments: Much Pain, No Gain in Forcing Tax-Exempt Money Market Funds to Adopt Floating NAVs," explain, "State and local entities across the United States benefit from the $2.6 trillion money market mutual fund sector. The Federal Reserve reports that as of the end of the first quarter of 2013 state and local governments hold over $120 billion of their short- and mid-term investments in money market funds. Beyond providing valuable cash management services for state and local governments, money market funds themselves are key purchasers of municipal securities. In fact U.S. money market funds are the largest investor in short-term municipal bonds, holding almost three-fourths of state and local short-term debt (72 percent as of April 2013)."

The webinar's slides discuss the "Key Role of Money Market Mutual Funds in the U.S. Economy and Municipal Finance." They cites "$2.6 trillion in assets" and money funds role as an "efficient cash management tool for treasurers and finance officials in: State and local governments, Corporations and other businesses, Colleges, universities, and other nonprofits." The webinar says money funds are "a significant investor in corporate commercial paper, holding more than one-third of all outstanding CP and the largest investor in short-term municipal securities."

Regarding the "The SEC Proposal and Its Implications," they explain, "[The] two fundamental policy alternatives, which could be adopted alone or in combination: Floating net asset values (NAVs) [and] Liquidity fees and redemption gates." They also cite,"Other significant reforms that would apply under either alternative; and, Enhanced standards on disclosure and reporting, diversification, and stress testing." On the "Floating NAV alternative," ICI's presentation adds, "Prime and tax-exempt institutional funds must adopt [a] floating NAV. Retail funds (defined as funds that limit redemptions per shareholder to $1 million or less per day) exempted U.S. government funds (Treasury, U.S. agency) also exempted."

The presentation says the "Implications of SEC floating NAV proposal" include: "Loss of simplicity, benefits for many fund investors; Accounting and tax issues: tracking daily gains and losses; Operational complexity: costly system changes for funds, investors, and intermediaries (e.g., broker-dealers, retirement plans); [and] Net effect of new complexities: many investors and intermediaries will exit money market funds."

The webinar says ICI's view is: "Like government funds, tax-exempt funds should be excluded from any floating NAV requirement. History shows that tax-exempt funds are not vulnerable to significant redemptions in times of market stress. In September 2008, net redemptions from tax-exempt money market funds totaled 7.5 percent of their assets as of August 2008. Tax-exempt funds hold enormous amounts of liquidity. As of March 2013, tax-exempt funds had $213 billion in weekly liquidity, 78 percent of their total assets. Tax-exempt funds provide significant benefits to the economy."

The Powerpoint asks, "Why do cash/investment managers of state and local governments use money market funds?" It cites as benefits, "Daily cash management -- keep your money invested; Daily liquidity -- unexpected events; Safety and security; Operational ease for accounting/recordkeeping; Hiring investment expertise at a low cost; Access to a broader group of investment securities; State or local investment requirements may make other alternatives difficult to execute; Bank sweep products may sweep into money market funds; Local Government Investment Pools (LGIPs) often use money market funds for part of their liquidity requirements."

They query, "How do these proposed changes impact the institutional investor?" The presentation tells us, "[The] Floating NAV causes many operational concerns. Additional recordkeeping -- costly system changes; Increased transaction costs -- Increased workload to handle daily investments; Increased risk by pushing investors into riskier less liquid/lower credit-quality investments; Different treatment of institutional versus retail investors; Accounting rules do not require market value or fair value reporting of investments with maturities less than a year.

Finally, the presentation adds under the "Effect on LGIPs," "[A] Decision for each LGIP on whether to make the same changes -- [they're] not regulated by the SEC; Rating agency actions; Conflict with GASB rules; Costly system changes; [and, finally, the] Use of money market funds within LGIPs."

The overwhelming opposition to the SEC's Proposed Money Fund Reform floating NAV for Prime Institutional MMFs continues to grow. The latest addition to the "Comments on Proposed Rule: Money Market Fund Reform; Amendments to Form PF is from Michael A. Egenton, Senior Vice President, Government Relations, New Jersey State Chamber of Commerce. He writes, "Thank you for the opportunity to write to you on behalf of the New Jersey State Chamber of Commerce ("State Chamber") regarding our strong opposition to the proposal put forth by the Securities and Exchange Commission to force institutional prime and tax-exempt money market funds to abandon the stable $1.00 net asset value and "float" their per-share price (the "floating NAV")."

Egenton explains, "By way of background, the State Chamber is recognized as the independent voice of business in New Jersey. With a broad based membership ranging from the Fortune 500 companies to small proprietorships, representing every comer of the state and every industry, our member companies provide jobs for over a million people in New Jersey. For businesses throughout the State of New Jersey, MMFs are a preferred vehicle for cash management. Many companies are required, by law or by investment policy, to invest cash only in products offering a stable value. The SEC's floating NAV proposal, if implemented, would diminish investor choice, without achieving regulators' goals of improving the stability of financial system."

He adds, "The convenience and simplicity of the stable share price draw investors to MMFs. Removing these features would drive investors away and impair a critical source of financing for both the private and public sectors. For institutions dependent on public funding, the shrinkage in MMFs would result in higher financing costs and reduced resources for their mission. The strict risk-limiting regulation and prudent professional management of MMFs have produced a record of stability for 40 years. New regulations have made these funds stronger and more resilient since the financial crisis. I urge the SEC not to harm this vital source of cash management and public funding by requiring a floating NAV. Again, thank you for considering our views."

In other news, Crane Data, which has been publishing Weekly Money Fund Portfolio Holdings since late 2012 (primarily for a number of online money fund trading "portals"), will soon begin producing of "`Reports & Pivot Tables" on the mid-month version of this dataset. Weekly holdings are not required by the SEC, so the majority of retail funds still don't distribute this information to clients. Most institutional funds, though, distribute holdings at least twice a month. We briefly review our first demo set of reports below.

Our Weekly portfolio holdings collection currently tracks $943.6 billion in assets, or 39% of the $2.415 trillion we track on our monthly collection. Given the differences in universes between our monthly and weekly datasets -- the weekly is biased towards prime institutional funds -- we look at the 5 largest funds in both universes to examine portfolio changes from July 31 to August 16. The largest prime funds include: JP Morgan Prime MM ($106.3 billion), Fidelity Inst MM MMkt ($68.3B), JP Morgan US Govt ($62.2B), BlackRock Lq TempFund ($47.6B), Fidelity Inst MM Prm ($46.6B), Wells Fargo Adv Hrtg ($38.8B).

As of August 16, these 5 funds held an average of 20.5% in Repo, 20.4% in CDs, 19.7% in Treasury, 13.8% in CP, 12.3% in Agency, 8.7% in Other, and 4.7% in VRDNs. This compares to 19.2% in Repo, 20.4% in CDs, 20.1% in Treasury, 17.2% in CP, 14.6% in Agency, 6.5% in Other and 2.0% in VRDNs. The Top 10 Issuers among the 5 largest funds (as of 8/16) included: US Treasury (21.4%, $185.6B), Federal Home Loan Bank (7.7%, $66.7B), Deutsche Bank AG (3.9%, $33.9B), Sumitomo Mitsui Banking Co (3.0%, $26.3B), Bank of Nova Scotia (2.8%, $24.0B), Federal Home Loan Mortgage Co (2.7%, $23.6B), Societe Generale (2.6%, $22.7B), RBC (2.3%, $20.0B), Bank of Tokyo-Mitsubishi UFJ Ltd (2.3%, $19.9B), and Barclays Bank (2.3%, $19.9B).

With the pending release of the European Commission's Proposal for a Regulation on Money Market Funds (Sept 4) and with our upcoming European Money Fund Symposium (Sept. 24-25, The Conrad, Dublin), we thought it would be a good time to review the latest MFI International Money Fund Portfolio Holdings, our collection of "offshore" money funds' securities denominated in U.S. Dollar, Euro and Pound Sterling. Crane Data tracks money funds registered in Dublin, Luxembourg or other domiciles outside the U.S., which are not available to U.S. investors but which are used by multinational corporations and institutions with European operations, via its Money Fund Intelligence International product suite. We review the latest lists of largest funds, largest issuers, composition, country and maturity distribution below.

Looking first at U.S. Dollar-denominated money funds domiciled offshore, which account for $375.7 billion of the total $687.1 billion in offshore assets tracked by Crane Data (or 54.7%), we show over $300 billion held in the 10 largest funds. These include: JPMorgan USD Liquidity Inst ($69.4 billion), Western Asset USD Liq Reserves ($64.6B), JPMorgan USD Treasury Liq Inst ($30.2B), Goldman Sachs USD Liq Resv Inst ($27.0B), BlackRock ICS USD Liquidity Heritage ($24.7B), HSBC USD Liquidity Fund A ($22.2B; note that HSBC doesn't report portfolio holdings for publication so it is excluded from our totals below), Goldman Sachs USD Treas Liq Resv Instit ($18.6B), SSgA USD Liq Fund I ($15.7B), BNY Mellon Universal US Treas Fund Advantage ($14.3B), and DB Advisors USD MMF Institutional ($13.9B).

Offshore USD money funds held an average of 26% in Commercial Paper, 23% in Certificates of Deposit, 18% in U.S. Treasury securities, 15% in Repurchase Agreements (repo), 14% in Other (primarily Time Deposits), and 4% in Government Agency securities. The largest country allocation was to the U.S. (30.7%), followed by France (14.0%), Sweden (8.2%), Great Britain (8.2%), Japan (8.1%), Canada (6.9%), Germany (6.9%), Australia (5.1%), Netherlands (3.8%), and Switzerland (2.9%). USD money funds hold 26.2% of assets in overnight securities (1-day maturity) and another 9.3% maturing in 2-7 days (so 35.5% maturing in 1-7 days). Another 17.4% matures in 8-30 days, 24.2% in 31-90 days, 15.9% in 91-180 days, and 7.0% over 181 days.

The 15 largest issuers to USD "offshore" money funds include: US Treasury (17.2% of the total, or $77.0 billion), BNP Paribas (3.4%, $15.1B), Deutsche Bank AG (3.3%, $14.8B), Credit Agricole (3.1%, or $14.0B), Societe Generale (2.8%, $12.6B), Barclays Bank (2.8%, or $12.4B), Bank of Tokyo-Mitsubishi UFJ Ltd (2.6%, or $11.6B), Sumitomo Mitsui Banking Co (2.6%, or $11.6B), Skandinaviska Enskilda Banken AB (2.5%, or $11.2B), Natixis (2.4%, or $10.9B), Svenska Handelsbanken (2.3%, or $10.2B), Bank of Nova Scotia (2.2%, or $9.9B), DnB NOR Bank ASA (2.1%, or $9.3B), Nordea Bank (1.9%, or $8.7B), JP Morgan (1.9%, or $8.5B).

Among Euro-denominated money funds domiciled offshore, which account for just E79.2 billion of offshore assets, we show over E65.3 billion held in the 10 largest funds. These include: BlackRock ICS Euro Liquidity Heritage (E14.0 billion), JPMorgan Euro Liquidity Institutional Flex (E11.5B), Goldman Sachs Euro Liquid Reserves Inst (E9.1B), DB Advisors Euro MMF Institutional (E8.4B), BNP Paribas Insticash Euro I (E8.3B), SSgA Euro Liq Fund (E4.6B), HSBC Euro Liquidity Fund A (E4.2B; HSBC's holdings aren't included below), Amundi Money Market Fund S-T EUR XC (E1.9B), Morgan Stanley Euro Liquidity (E1.7B), and Ignis Euro Liquidity Fund Cl 0 (E1.6B).

Offshore Euro money funds held an average of 41% in Commercial Paper, 21% in Certificates of Deposit, 19% in Other (primarily Time Deposits), 11% in Repurchase Agreements (repo), and 6% in Treasury (European government) securities. The largest country allocation was to France (35.2%), followed by Germany (17.1%), Netherlands (11.4%), Great Britain (10.4%), Sweden (6.6%), the U.S. (5.7%), Japan (4.7%), Supranational (1.8%), and Finland (1.2%). Euro money funds hold 20.4% of assets in overnight securities (1-day maturity) and another 6.8% maturing in 2-7 days (so 27.2% maturing in 1-7 days). Another 20.5% matures in 8-30 days, 34.8% in 31-90 days, 13.4% in 91-180 days, and 4.2% over 181 days.

The 15 largest issuers to Euro "offshore" money funds include: BNP Paribas (7.7%, E5.8B), FMS Wertmanagement (6.1%, E4.6B), Credit Agricole (5.8%, E4.4B), Societe Generale (5.1%, E3.8B), Rabobank (4.2%, E3.2B), HSBC (3.9%, E2.9B), Barclays Bank (3.5%, E2.6B), Credit Mutuel (3.4%, E2.6B), Republic of France (3.2%, E2.4B), Nordea Bank (3.1%, E2.4B), ING Bank (3.1%, E2.3B), Svenska Handelsbanken (2.8%, E2.2B), Deutsche Bank AG (2.6%, E2.0B), Kingdom of the Netherlands (2.5%, E1.9B), and General Electric (2.0%, E1.5B).

Looking at Sterling-denominated money funds, which account for L134.7 billion of offshore assets, we show over L85.7 billion held in the 10 largest funds. These include: BlackRock ICS Sterling Liquidity Heritage (L26.1 billion), SWIP Global Sterling Liq Fund Inst (L16.4B), JPMorgan Sterling Liquidity Inst (L7.6B), DB Advisors Sterling MMF Institutional (L6.6B), Ignis Sterling Liquidity Fund Cl 0 (L6.2B), HSBC Sterling Liquidity Fund A (L5.7B; HSBC refuses to report holdings so these are not included in totals below), Goldman Sachs Sterling Liquid Reserves Inst (L5.7), RBS Global Sterling MMF Cl 3 (L5.0B), SSgA Global Cash Mgmt GBP Fund (L3.4B), and BNY Mellon Universal Sterling Liq Advantage (L3.0B).

Offshore GBP (pound sterling) money funds held an average of 32% in Commercial Paper, 30% in Certificates of Deposit, 28% in Other (primarily Time Deposits), 6% in Repurchase Agreements (repo), and 3% in Treasury (U.K. government) securities. The largest country allocation was to France (17.8%), followed by Great Britain (14.8%), Germany (13.0%), Netherlands (12.3%), Japan (9.5%), Sweden (6.7%), the U.S. (5.6%), Singapore (4.2%), and Australia (4.1%). Sterling money funds hold 22.9% of assets in overnight securities (1-day maturity) and another 3.3% maturing in 2-7 days (so 26.2% maturing in 1-7 days). Another 20.9% matures in 8-30 days, 38.2% in 31-90 days, 11.1% in 91-180 days, and 3.5% over 181 days.

The 15 largest issuers to GBP "offshore" money funds include: FMS Wertmanagement (5.3%, L5.6B), Credit Agricole (4.7%, L4.9B), ING Bank (4.4%, L4.6B), Nordea Bank (4.0%, L4.2B), HSBC (3.9%, L4.1B), Sumitomo Mitsui Banking Co (3.6%, L3.8B), Rabobank (3.6%, L3.8B), Deutsche Bank AG (3.5%, L3.7B), Bank of Tokyo-Mitsubishi UFJ Ltd (3.4%, L3.6B), JP Morgan (3.0%, L3.2B), Societe Generale (2.9%, L3.1B), Barclays Bank (2.6%, L2.8B), Oversea-Chinese Banking Co (2.6%, L2.8B), Credit Suisse (2.4%, L2.6B), and BNP Paribas (2.3%, L2.5B).

With less than a month to go in the comment period for the SEC's latest Money Market Fund Reform Proposal, Crane Data has decided to conduct a brief survey of its Money Fund Intelligence subscribers in order to gauge our reader's thoughts and to guide a comment letter on the SEC's Proposed Money Market Fund Reform. We also wanted to seek some reader feedback on a handful of other important issues. (We e-mailed it to subscribers yesterday.) We have also now opened up the MFI survey to readers of and visitors to The survey should only take a couple of minutes and may be accessed at: Thank you for your participation, and please let us know if we can be of assistance in providing data for or feedback on any of your comment letters. We show the questions below, FYI.

The Crane Data's 2013 Money Fund Intelligence Subscriber Survey: SEC MMF Reform Proposal and Major Issues (August 22, 2013) begins with the question: 1. This question is in regard to the U.S. S.E.C.'s Money Market Fund Reform Proposals, which "would reform the way that money market funds operate in order to make them less susceptible to runs that could harm investors." Which of the options do you think is the best alternative for money market mutual fund regulation? (See for details on the proposal.) a. Floating net asset values for Prime Institutional MMFs. b. Emergency liquidity fees and "gates" for MMFs. c. A combination of floating NAVs and fees/gates for MMFs. d. Neither option, only additional disclosures. e. Other, please specify.

The survey next asks: 2. How would you rank these options for Money Market Fund Reform? (from 1 to 10 with 10 being the highest): Floating net asset values for Prime Institutional MMFs, Emergency liquidity fees and "gates" for MMFs, A combination of floating NAVs and fees/gates, Additional disclosures, or, Rejection of both floating NAV and fees/gates option. We also ask: 3. Which of these options do you think would do the most harm? Floating net asset values for Prime Institutional MMFs, Emergency liquidity fees and "gates" for MMFs, A combination of floating NAVs and fees/gates, Additional disclosures for MMFs, or, Other, please specify.

The MFI Survey then asks readers, "4. On a scale of 1 to 10 (highest), how important is the $1.00 stable value to money market mutual funds? We also seek feedback on the following question: 5. What is the most important issue facing money market funds today? Regulatory changes, Ultra-low interest rates, Rising rates, Lack of supply in money markets, Consolidation, Competition from banks or new products, or, Other, please specify.

In addition, we ask: 6. What is your outlook for the future of money market mutual funds? Very bearish, Bearish, Neutral, Bullish, or Very Bullish. The survey's question No. 7 is: 7. How much do you expect money fund assets to increase or decrease in 2013? Decrease by over 10%, Decrease by 5-10%, Decrease by 0-5%, Little or no change, Increase by 0-5%, Increase by 5-10%, or, Increase by over 10%.

The survey asks: 8. What is your title or job function? Money fund portfolio manager, analyst or trader, Money fund sales or marketing, Money fund business development or board, Money market security issuer or dealer, Money market fund investor, Money fund service provider, Money fund rater or regulator, or, Other, please specify. It asks: 9. What is your name, title and e-mail address (optional)? Name, Company, Address, and Email Address. Finally, we ask: 10. Are you interested in seeing Crane Data collect or cover any information or news that it's not currently tracking?

Watch for results and details in our September Money Fund Intelligence issue, and look for our comment letter to the SEC summarizing the results just prior to the Sept. 17 deadline. To comment directly to the SEC, visit Submit Comments, and click here to see the Comments to-date.

Another batch of Comments on Proposed Rule: Money Market Fund Reform; Amendments to Form PF were posted on the SEC's website yesterday following a later summer lull. We expect to see the comment letters start coming in fast and furious in coming weeks as we approach the Sept. 17 feedback deadline. Among the most recent batch are one from the Government Finance Officers Association (GFOA) and a number of other Government and municipal organizations, which proposes that the SEC host a roundtable on issues, particularly those involving the floating NAV option. Two other letters from community banks, one from MainSource Bank and one from Woodlands Bank, are also mentioned below.

The GFOA letter, which is also co-signed by the International City/County Management Association, National Association of State Auditors, Comptrollers and Treasurers, National Association of State Treasurers, National League of Cities, National Association of Counties, U.S. Conference of Mayors, American Public Power Association, and Council of Infrastructure Financing Authorities, says, "The undersigned organizations listed above represent state and local governments and public infrastructure development agencies that rely on money market mutual funds ("MMMFs") to meet their investment and short-term financing needs. Our organizations have long supported efforts to strengthen MMMFs while ensuring the preservation of this vehicle for cash management and financing of governments' essential short-term needs."

It explains, "On June 5, 2013, the Securities and Exchange Commission ("Commission") approved proposed rules for MMMF reform ("Proposal"), which include the option of requiring a floating net asset value ("NAV") for institutional prime and tax-exempt funds. We remain concerned about the impact of a floating NAV on our use of MMMFs for cash management and on these funds' ability to provide municipal financing. `Forcing MMMFs to float their NAVs will create significant accounting, operational, and tax problems for investors and issuers. While we appreciate that the Commission acknowledges these problems, the Proposal provides no clear-cut solutions. Accordingly, we believe that it is incumbent upon the Commission to work jointly with other bodies and interested stakeholders to make certain that accounting, tax, and operational implications are fully addressed before the Proposal is finalized."

The GFOA letter continues, "As a next step, we therefore request that the Commission convene a roundtable to discuss the issues that the Proposal -- and particularly the option of requiring floating NAVs -- raises for states and municipal governments, financing authorities, businesses, and others who rely on MMMFs for cash management and short-term financing. Such a roundtable would afford the Commission and accounting and tax authorities an opportunity to collectively address the complicated repercussions of requiring MMMFs to float the NAV. Significant changes to investment policies, processes, and systems -- including in many cases changes to state law will be required to implement this alternative. The Proposal concedes as much, noting that the move to a floating NAV will necessitate complex and potentially costly changes to numerous financial and accounting systems. A roundtable would inform the Commission on the concerns of government finance officials and the extent to which they may stop using MMMFs if unworkable regulations are implemented."

It adds, "A floating NAV requirement for a broad category of MMMFs could also adversely affect states' ability to run local government investment pools ("LGIPs"). Many of these pools model their portfolio management on the risk-limiting provisions of SEC Rule 2a-7 in order to offer a stable $1.00 share price. Changes to Rule 2a-7 that require a broad category of MMMFs to float their share prices could undermine the ability of LGIPs to provide cost-effective cash management for local governmental entities."

Finally, GFOA, et. al., comment, "Given the many questions raised in the Proposal, we believe that convening a roundtable and continuing the dialogue with interested parties will aid the Commission in generating a more informed, effective rule. Such an approach will ensure that any potential regulatory changes aimed at MMMF reform will be consistent with the Commission's statutory responsibility to promote efficiency, competition, and capital formation. We appreciate the opportunity to continue working with the Commission on MMMF reform, and we would welcome the opportunity to discuss the logistical aspects of a roundtable, including prospective participants, in greater detail."

The other letters of note include one from Daniel F. Anderson, CTFA, Senior Vice President, MainSource Bank, which says, "MainSource Bank is a community bank trust department that offers personal trust, investment advisory and custodial services to individuals, foundations, endowments, and public and private pension funds.... For decades we have relied on providing liquidity to these types of individuals or institutions through the use of so-called institutional prime money market mutual funds.... We are aware or the changes set forth by the [SEC] and are writing to you to express our concern as to the effect that the adoption or at least one or the proposals will have on our ability to continue to provide liquidity services lo our customers.... We are particularly concerned about the proposal in the release stating that institutional prime funds would be required to effect purchases and redemptions at net asset values other than $ 1.00 per share."

Finally, Thomas B. Burkholder, Vice President & Trust Officer, Woodlands Bank, writes, "[W]e are concerned that the SEC has a misperception of the challenges presented to community trust departments and their reliance on institutional prime money market mutual funds as predictable, reliable and prudent sources of liquidity. Since there are no readily available alternatives to prime funds, the troubling potential exists where community bank trust departments such as ours might have to return to cash management procedures as they existed before the advent of money market mutual funds -- where community bank trust departments had to acquire, retain and monitor the maturity of individual short-term investments. Such a result would add additional layers of cost that, of necessity, would have to be passed on to clients."

Invesco, which has recently begun running a new banner ad on touting its "long-term approach to short-term investing," also just posted a new Global Liquidity Commentary entitled, "Why So Low? Repo in the Driver's Seat. The brief, subtitled, "Repo in the driver's seat," says, "Low yields on repurchase agreements, or repos, throughout the month continued to put downward pressure on the yields of other short-term instruments and to drive further out the yield curve. Repo rates have remained low due to a sharp reduction in Treasury bill supply, an increase of cash in the front end of the yield curve and quantitative easing, which is removing collateral from the market."

Invesco explains, "Short-term yields still isolated from turbulence. Bond markets rallied in July on dovish comments by Federal Reserve Chairman Ben Bernanke that eased concerns about the immediacy of tapering. Shorter-term yields (under 1 year) have been less affected by tapering anxieties."

Finally, they add, "Ratings news: good and bad. Moody's revised their outlook for the US long-term sovereign debt from 'negative' to 'stable' citing deficit reduction efforts and an improving US economy. Earlier in the month, Fitch downgraded France's sovereign debt rating from 'AAA' to 'AA+' citing concerns regarding the country's debt burden."

Invesco's table on "Short-Term Interest Rates" shows Fed Funds Effective rising from 0.07 to 0.09 from the end of June (6/28) to the end of July (7/31) and Overnight Treasury Repo rising from 0.05 to 0.07. But 3-month Treasury bills fell to 0.02 from 0.05, and the Tax-Exempt Securities Industry and Financial Markets Association (SIFMA) Index fell to 0.05 from 0.06 in July.

Looking at market repo rates, the DTCC's GCF Repo Index hit record lows in July, averaging 0.053% for Treasury collateral, 0.062% for Agency collateral and 0.067% for MBS collateral. Rates have rebounded slightly month-to-date in August, so expect to see some relief from the record low gross yields in money funds for July.

As we wrote in our August 12 Crane Data News (Latest Portfolio Holdings Show Jump in Treasuries, CP, Repo Rebound), repos are no longer the largest holding segment of taxable money funds, though they remain a very close third behind CDs and Treasuries <b:>`_. Certificates of Deposit represent 20.4% of taxable money fund holdings, Treasury securities account for 20.1%, and Repo comprises 19.2%. Commercial Paper totals 17.2%, Government Agency securities total 14.6%, Other securities (which includes Time Deposits) total 6.5%, and VRDNs total 2.0%.

Today, we again look at the SEC's Proposal on Money Market Fund Reform with a focus on the section on "Stress Testing (page 468). It says, "In 2010, we adopted amendments to rule 2a-7 that, for the first time, required the board of directors of each money market fund to adopt procedures providing for periodic stress testing of the money market fund's portfolio, which we refer to as the stress testing requirements. We adopted this requirement based on our belief that "stress testing procedures would provide money market fund boards a better understanding of the risks to which the fund is exposed and would give managers a tool to better manage those risks.""

The release explains, "Under these amendments, we required that the fund adopt procedures providing for periodic testing of the fund's ability to maintain a stable price per share based on (but not limited to) certain hypothetical events. These hypothetical events include a change in short-term interest rates, an increase in shareholder redemptions, a downgrade of or default on portfolio securities, and the widening or narrowing spreads between yields on an appropriate benchmark selected by the fund for overnight interest rates and commercial paper and other types of securities held by the fund. At the time, we declined to specify further tests that a money market fund should conduct to fully assess its ability to maintain a stable value, leaving it to the fund's board (and the fund manager) to establish additional scenarios or assumptions on which the tests should be based and to tailor the tests, as appropriate, for different market conditions and different money market funds."

The SEC writes, "Since 2010, we and our staff have continued to monitor the stress testing requirement and how different fund groups are approaching its implementation in the marketplace. Through our staff's examinations of money market fund stress testing procedures, we have observed disparities in the quality and comprehensiveness of stress tests, the types of hypothetical circumstances tested, and the effectiveness of materials produced by the fund's manager to explain the stress testing results to the board. For example, although some funds actively embrace the spirit of the requirement by testing a variety of additional hypothetical events and tailoring their stress testing to the particular market conditions and potential risks that they may face, other funds test only for the events specifically listed in the rule. Some funds test for combinations of events, as well as for correlations between events and between portfolio holdings, whereas others do not. We also have examined how funds share information about stress testing results with their boards."

They continue, "Since adopting the stress testing requirement in 2010, we have had several opportunities to assess its effectiveness during periods of market stress, including the 2011 Eurozone debt crisis and the 2011 U.S. debt ceiling impasse. Our staff observed, for example, that during the 2011 Eurozone debt crisis, funds that had strong stress testing procedures were able to use the results of those tests to better manage their portfolios and minimize the risks associated with the crisis. After considering this information and experience, we believe that certain enhancements to our stress testing requirements may be warranted. We also note that our floating NAV proposal and our liquidity fees and gates proposal may have different implications regarding the need for and nature of stress testing of a money market fund's portfolio. Accordingly, we are proposing a variety of amendments and enhancements to our stress testing requirements. The amendments and enhancements we are proposing to the stress testing requirements would largely be identical under either reform alternative we might adopt, except that for floating NAV money market funds we would remove the standard to test against preserving a stable share price if we were to adopt the floating NAV alternative, as further discussed below."

Under the "Floating NAV Alternative," the Proposal says, "As discussed above, we acknowledge that requiring that money market funds transact with a floating NAV mitigates but does not eliminate the possibility of heavy shareholder redemptions. We understand that in times of broad financial market stress, shareholders in floating NAV money market funds may still have an incentive to redeem shares because of funds' limited internal liquidity or because of overall flights to quality, liquidity, or transparency. Accordingly, stress testing the liquidity of floating NAV funds could enhance a fund board's understanding of risks and fund management of those risks."

It adds, "If we adopt the floating NAV alternative, we propose to amend the current stress testing requirement as it would apply to floating NAV money market funds to require that such funds test the impact of certain market conditions on fund liquidity, instead of requiring that they test the fund's ability to maintain a stable price per share. More specifically, we are proposing that each floating NAV money market fund stress test its ability to avoid having its weekly liquid assets fall below 15% of all fund assets. This requirement also would be in accord with the proposed requirement, discussed in the next section, that would require funds to stress test their ability to avoid crossing the same 15% weekly liquid asset threshold because it could trigger fees or gates. We selected this 15% weekly liquid asset test for similar reasons that we selected that threshold under our liquidity fees and gates alternative -- that a money market fund falling below this liquidity threshold can indicate stress on the fund. Funds that go below the 15% weekly liquid asset threshold may face significant adverse consequences, and thus fund boards and advisers should understand and be aware of what could cause a fund to cross such a threshold."

The Reform proposal also comments, "For a money market fund that would be exempt from the floating NAV requirement under our proposal (a government or retail money market fund), we propose requiring that it stress test for both its ability to avoid having its weekly liquid assets fall below 15% of its total assets and its ability to maintain a stable share price. This would augment the current testing that these funds conduct to test not just against stresses that could cause these funds to "break the buck" but also for liquidity stresses."

Under the "Liquidity Fees and Gates Alternative," the SEC comments, "If we adopt our liquidity fees and gates alternative proposal, we are proposing that money market funds stress test against the potential for a money market fund's level of weekly liquid assets to fall below 15% of its total assets, in addition to stress testing against the fund's ability to maintain a stable share price. If we adopt this alternative, we would also adopt the same enhancements and clarifications to the stress testing provisions of rule 2a-7 discussed above under our floating NAV proposal."

They add, "Money market funds currently must stress test their ability to maintain a stable NAV per share, because failing to maintain such stability may result in significant adverse consequences for its investors, as discussed above. Under our liquidity fees and gates alternative, if a fund's level of weekly liquid assets falls below 15%, we would require a fund to impose liquidity fees (unless the board determines otherwise) and a fund may impose a gate. Much like the inability to maintain a stable price, the triggering of such fees or gates may result in significant consequences for a fund and its shareholders. Accordingly, we are proposing an additional metric against which the fund would have to stress test: the fund's level of weekly liquidity assets falling below 15%. Requiring funds to stress test their ability to avoid crossing this threshold should help inform boards and fund managers of the circumstances that could cause a fund to trigger fees or gates and provide them a tool to help avoid doing so."

Finally, the SEC's proposal says, "Generally, we expect that a fund would use similar hypothetical circumstances when testing its ability to avoid triggering fees and gates that it uses when stress testing its ability to maintain a stable price. However, some funds may identify different circumstances that are more relevant to testing one standard than another, and thus may use different versions of the hypothetical scenarios, or weigh them differently for each. For example, certain events, such as significant shareholder redemptions in a short time period, may more strongly affect the ability of a fund to avoid crossing the 15% weekly liquid asset threshold than the ability to maintain a stable price. Other events, such as a credit default in a portfolio security, may more strongly affect the ability of a fund to maintain a stable price than avoid crossing the liquidity threshold. Stress tests should thus account for a variety of circumstances that affect the ability of a fund to meet each standard."

Money market mutual fund assets rose slightly last week, increasing for the second week in a row and for the 6th week in the past 8 weeks. ICI's latest "Money Market Mutual Fund Assets" says, "Total money market mutual fund assets increased by $2.31 billion to $2.622 trillion for the week ended Wednesday, August 14, the Investment Company Institute reported today. Taxable government funds decreased by $550 million, taxable non-government funds increased by $3.67 billion, and tax-exempt funds decreased by $800 million." Year-to-date, money market mutual fund assets have decreased by $82 billion, or 3.0%, but since May 1, 2013, assets have increased by $59 billion, or 2.3%.

ICI's latest weekly report explains, "Assets of retail money market funds decreased by $580 million to $923.68 billion. Taxable government money market fund assets in the retail category decreased by $250 million to $198.39 billion, taxable non-government money market fund assets increased by $410 million to $530.69 billion, and tax-exempt fund assets decreased by $740 million to $194.61 billion." Retail money funds currently account for 35.2% of all money fund assets, with non-government ("prime") retail funds making up 20.2% of assets, government retail making up 7.6%, and tax-exempt retail making up 7.4% of all assets.

It adds, "Assets of institutional money market funds increased by $2.89 billion to $1.699 trillion. Among institutional funds, taxable government money market fund assets decreased by $300 million to $711.20 billion, taxable non-government money market fund assets increased by $3.26 billion to $914.95 billion, and tax-exempt fund assets decreased by $70 million to $72.46 billion." Institutional funds now account for 64.8% of all MMF assets, with prime institutional funds (the portion that could be forced to use a floating NAV) totaling 34.9%, government institutional funds totaling 27.1%, and tax-exempt institutional funds totaling just 2.8% of assets.

Year-to-date, Institutional MMFs have decreased by $63 billion, or 3.6%, while Retail MMFs have decreased by $20 billion, or 2.1%. Since May 1, Retail MMFs have gained more in assets than Institutional funds, rising by $33 billion, or 3.7%, while Inst MMFs have increased by $26 billion, or 1.5%.

ICI also released its latest weekly "Estimated Long-Term Mutual Fund Flows" on Wednesday, which shows that outflows from bond funds continued in the week ended August 7. (ICI's long-term flow data lag by a week while their money fund data is current.) They write, "Bond funds had estimated outflows of $2.09 billion, compared to estimated outflows of $6.95 billion during the previous week. Taxable bond funds saw estimated inflows of $33 million, while municipal bond funds had estimated outflows of $2.13 billion."

Crane Data's Money Fund Intelligence Daily shows money fund assets fell by $696 million Wednesday and have risen by $9.0 billion the past week. (We track a different universe of funds than ICI.) The largest assets increases for the past week were shown by the following funds: JPMorgan US Govt MM Agency (up $2.3B), Fidelity Instit MM: Prime MMP I (up $2.1B), Wells Fargo Adv Heritage I (up $2.0B), Dreyfus Instit Cash Adv Inst (up $1.4B), BlackRock Cash Prime MMF Inst (up $1.3B), Vanguard Prime MMF (up $1.3B), Goldman Sachs FS MM Admin (up $1.1B), Federated Treasury ObIig Cap (up $1.1B), First American Govt Obligs Z (up $854M), and HSBC Inv US Govt Money Mkt I (up $854M).

The largest declines in the past week were shown by: Goldman Sachs FS Govt Admin (down $1.8B), BlackRock Lq FedFund Inst (down $1.3B), BofA Treasury Reserve Capital (down $1.2B), Goldman Sachs FS Trs Obl Adm (down $977M), DWS MM Series Instit (down $726M), Invesco Treasury Cash Mgmt (down $597M), DWS CAT Prem MM Sh MMP Svc (down $563M), BlackRock Lq TempFund In (down $511M), Goldman Sachs FS Trs Ins Adm (down $500M), and Morgan Stanley Inst Liq Govt Inst (down $403M).

Momentum is building and final preparations are being made for the inaugural Crane's European Money Fund Symposium, which will be held Sept. 24-25 at the Conrad Hotel in Dublin, Ireland. Crane Data has already attracted over a dozen sponsors for the event to date, and we're now projecting our first "offshore" money fund conference to be the largest money fund gathering ever held outside the U.S.. European Money Fund Symposium features an unmatched speaking faculty, including many of the world's foremost authorities on money funds in Europe and worldwide. We review the latest agenda and plans for the upcoming European Money Fund Symposium below. (Visit to register and to see the latest agenda, or contact us to request the PDF brochure or for more details.)

When announcing Crane Data's push into Europe earlier this year, Peter Crane wrote, "Dear Money Fund & Cash Investment Professional: I'm pleased to announce the launch of Crane's European Money Fund Symposium, Sept. 24-25, 2013, at The Conrad Hotel in Dublin, Ireland. Crane Data's U.S. Money Fund Symposium attracts the largest gathering of money fund professionals in the world, so we expect our inaugural European event to attract a robust crowd. We're now accepting registrations and hotel reservations, and are happy to discuss speaking and sponsorship opportunities."

He added, "European Money Fund Symposium will offer money market portfolio managers, investors, issuers, and service providers a concentrated and affordable educational experience, as well as an excellent and informal networking venue. Our mission is to deliver the best possible conference content at an affordable price to money market fund professionals and investors. Attendee registration for Crane's European Money Fund Symposium is $1,000 (or E750). A block of sleeping rooms has been reserved at The Conrad Dublin. The conference negotiated rate of E179 single and E189 double are available through September 5th. We hope to see you in Dublin!"

The Day One Agenda for Crane's European Money Fund Symposium includes: "State of MMFs in Europe & IMMFA Update" with Jonathon Curry, Chairman, IMMFA; "Global Regulatory Issues: What's Next?" with Dan Morrissey, Partner & Head of Asset Management, William Fry and John Hunt, Partner, Nutter, McClennen & Fish; "Risks & Ratings: Areas of Concern" with Yaron Ernst, Managing Director, Moody's Investors Service; "Monitoring European & Offshore MFs" with Joel Friedman, Managing Director, Standard & Poor's and Aymeric Poizot, Head of EMEA Fund Ratings, Fitch Ratings; "Major Issues in Euro Money Funds" with Jason Granet, MD & Head International Liquidity PM, Goldman Sachs Asset Mgmt and Joe McConnell, Portfolio Manager, J.P. Morgan Asset Management; "Major Issues in Sterling Money Funds" with Jennifer Gillespie, Head of Money Markets, Legal & General I.M. and Dennis Gepp, CIO & MD, Federated Prime Rate; "Major Issues in USD & US Money Funds with Charlie Cardona, CEO, BNY Mellon Cash Investment Strategies, Debbie Cunningham, MM CIO, Federated Investors and Andrew Goodale, Sr. Product Engineer, SSgA; and, "MMFs in Asia & Emerging Markets" with Peter Crane, President & Publisher, Crane Data and Andrew Paranthoiene, Director, Standard & Poor's.

The Day Two Agenda includes: "Dublin as a Domicile for Money Market Funds" with Pat Lardner, Chief Executive, Irish Funds Industry Association; "Distribution Panel: New Markets & Concerns" with Henry Buckmaster, Director, Federated Intl Management Ltd, Jim Fuell, Head of Global Liquidity, EMEA, J.P. Morgan Asset Management; and Kathleen Hughes, Global Head of Liquidity Sales, Goldman Sachs A.M.; "Dealer Update & Supply Discussion" with Kieran Davis, European Head of ST Trading, Barclays, Jean-Luc Sinniger, Director, Citi Global Markets and David Hynes, Partner, Northcross Capital LLP; "Portal Panel: Beyond MMFs & Transparency" with Justin Meadows, Chief Executive, MyTreasury, Greg Fortuna, MD, State Street's Fund Connect, Maryum Malik, Director of Business Development, SunGard, and Graeme Henderson, Cachematrix; "There & Back Again: A Bank Funding Story" with Paul Flynn, Global Head of Markets, Bank of Ireland; and, finally, a "Portfolio Manager Roundtable & Open Discussion.

Sponsors and supporters to date of the event include: HSBC Global Asset Management, Moody's Investors Service, BofA Global Capital Management, Federated International, State Street Global Advisors, Fund Connect, J.P. Morgan Asset Management, BNY Mellon Liquidity Funds, Cachematrix, Standard & Poor's, MyTreasury, Northcross Capital, Nutter, McClennen & Fish, Treasury Management International, and Treasury Today. Registration, which is $1,000 USD (or 750 Euros), is now open and hotel reservations are still being accepted. (Our discounted rate of E179 is available until Sept. 5.)

Crane Data also produces largest annual gathering of money market professionals, Crane's Money Fund Symposium (we had 450 at our recent show in Baltimore), and the "basic training" event, Money Fund University. Our next U.S. Symposium is scheduled for June 23-25, 2014 in Boston, and our next MF University is scheduled for January 23-24, 2014, in Providence. The 2014 European Money Fund Symposium is tentatively scheduled for Sept. 23-24 in Edinburgh, Scotland.

A press release entitled, "Treasury Strategies Launches Regulatory Cost Calculator for Money Fund Users," tells us, "The SEC is proposing changes that will require many money market funds (MMFs) to change from a constant $1.00 net asset value (CNAV) to a floating variable net asset value (VNAV). To help corporate treasurers understand the full implications of this change and to respond by September 17 to the SEC's request for comment, Treasury Strategies has launched a free, online cost calculator at This tool guides investors through the policy, process, accounting and technology changes, which will be required to comply with the SEC VNAV proposal for institutional, prime money market funds."

The release explains, "Treasury Strategies recent study, commissioned by the U.S. Chamber of Commerce, estimates the total cost for investors to move from a stable to a floating NAV would be between $1.8 and $2 billion, plus new estimated operating costs of an additional $2-2.5 billion. Corporations, states, municipalities, and other public institutions, already operating within tight budgets, would have to absorb the costs to comply with new rules. All corporations that invest in institutional prime money market funds will be directly affected by these changes. If the proposal is adopted, corporations will need to significantly alter their investment policies, accounting practices, and treasury management systems in order to comply with new requirements."

Anthony J. Carfang, Partner at Treasury Strategies, Inc., says, "The potential financial and operational cost is large. Corporations must carefully consider the implications as they assess the potential impact on their own organizations and provide comment by the SEC's September 17 deadline. The VNAV calculator is a tool to help treasurers quickly quantify the financial impact of compliance."

The Calculator page, entitled, "Proposed Money Market Fund Regulations: VNAV Implementation Cost Calculator for Corporations and Institutional Investors," explains, "The SEC is proposing changes that will require money market funds to change from a stable $1.00 NAV to a floating variable net asset value (VNAV). Initially this proposal will apply only to institutional prime money market funds. If adopted, companies may need to alter investment policies, business processes and treasury management systems."

It adds, "You may find that this proposed regulation would impact your ability to efficiently run your corporate treasury department while continuing to use money market funds as you do today. To help you better understand the potential impact of this regulation, Treasury Strategies has created the simple-to-use VNAV Implementation Cost Calculator. Treasury Strategies developed the VNAV Implementation Cost Calculator following interviews with dozens of our corporate clients, coupled with our firm's 30 years of experience working in corporate treasury and liquidity."

Finally, the site says, "Feel free to use all the tools on this website to estimate the initial costs of compliance and to voice your comments to appropriate regulators and legislators. The deadline for your comments to the SEC is September 17, 2013. Please evaluate the impact to your organization and contact the SEC with your concerns. If you need any assistance using the calculator, please contact Mike Gallanis at"

Last week, we published our latest Money Fund Intelligence for August with data as July 31, 2013. Today, we highlight some of the July 31 data and averages. This month's issue features an article entitled, "Money Fund Expenses, Gross Yields, Hit Record Low." It says, "The average expense ratio charged by money market mutual funds fell to a record low 0.14% in July (this is our Crane Money Fund Average, a simple average of all taxable money funds), down 2 basis points from the prior month. Our Crane 100 Index, an average of the largest taxable money funds, also fell to a record low of 0.16% (like yields, expense ratios are annualized). The previous record low had been 0.15% (0.17% for the Crane 100) in November and December 2011."

The latest MFI added, "Gross yields for money funds also hit record lows in July 2013. The Crane Money Fund Average 7-Day Gross Yield was 0.16% in July, while the Crane 100 Gross 7-Day was 0.19%. November and December 2011 was also the prior record low for this statistics too (at 0.17% and 0.21%). Charged expense ratios (listed as "Exp%" in our tables) for July 2013 range from 0.20% for Prime Institutional and Prime Retail money funds to 0.08% for Treasury Inst and Retail funds. (Govt Inst and Govt Retail MMFs averaged 0.11%.) Tax Exempt MMFs charged a record low of 0.17% too in July. Annualized revenue from money market mutual funds fell below the $4 billion mark for the first time since we began tracking funds." (See the August issue for the accompanying charts and see our MFI XLS and historical Crane Indexes spreadsheet for more.)

For the month ended July 31, 2013, our Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 816), remained at a record low of 0.01% for both the 7-Day and 30-Day Yield (annualized, net) averages. Our Crane 100 Money Fund Index shows an average yield (7-Day and 30-Day) of 0.02%, also a record low, and down from 0.04% last quarter and from 0.05% at the start of 2013. Our Prime Institutional MF Index yielded 0.03% (7-day, unchanged from June), the Crane Govt Inst Index, Crane Treasury Inst, Treasury Retail, Govt Retail and Prime Retail Indexes all yielded 0.01%. The Crane Tax Exempt MF Index also yielded 0.01%. The Crane 100 MF Index returned on average 0.00% for 1-month, 0.01% for 3-month, 0.02% for YTD, 0.04% for 1-year, 0.06% for 3-years (annualized), 0.26% for 5-year, and 1.70% for 10-years.

Last week, we also released our latest Family & Global Rankings, which shows gains by almost all the major money fund complexes in July. Goldman and Federated were the only two among the top 10 to show declines. Money fund assets rose by $27.8 billion, after falling $26.4 billion in June and rising $35.8 billion in May. Before May, assets had fallen in every month prior in 2013, dropping by $124.0 billion through April 30. Fidelity Investments remained the largest money fund manager, followed by J.P. Morgan and Federated Investors. The rest of the Top 10 managers of domestic U.S. money funds were also unchanged in order and included -- Vanguard, Schwab, BlackRock, Dreyfus, Goldman Sachs, Wells Fargo, and Morgan Stanley.

When "offshore" money fund assets -- those domiciled in places like Dublin, Luxembourg, and the Cayman Island -- are included, the top 10 match the U.S. list, except for BlackRock moving up to No. 3, Goldman moving up to No. 5, and Western Asset appearing on the list at No. 9.. We review these rankings below. (Note: Crane Data's July 31 Money Fund Portfolio Holdings were released Friday afternoon and that our "Reports & Pivot Tables" were sent out over the weekend. See our News coverage on these from yesterday.)

Our latest domestic U.S. money fund Family Rankings show Fidelity managing $421.4 billion, or 17.1% of all assets (up $604 million in July, up $11.6B over 3 mos. and up $13.4B over 12 months), followed by JPMorgan's $229.1 billion, or 9.3% (up $3.8B, down $3.2B, and down $12.1B for 1-month, 3-months and 12-months, respectively). Federated Investors ranks third with $220.3 billion, 9.0% (down $829M, down $2.8B, and down $8.6B), Vanguard ranks fourth with $171.2 billion, or 7.0% (up $912M, $6.1B, and $11.5B), and Schwab ranks fifth with $161.7 billion, or 6.6% (up $1.5B, $7.6B, and $9.7B) of money fund assets.

The sixth through tenth largest U.S. managers include: Dreyfus ($152.8 billion, or 6.2%), BlackRock ($147.0 billion, or 6.0%), Goldman Sachs ($123.4 billion, or 5.0%), Wells Fargo ($114.2 billion, or 4.7%), and Morgan Stanley ($94.7 billion, or 3.9%). The eleventh through twentieth largest U.S. money fund managers (in order) include: Northern, SSgA, Invesco, UBS, Western Asset, BofA, DB Advisors, First American, Franklin and RBC. Crane Data currently tracks 75 managers, down one from last month. (HighMark liquidated and their assets moved to #25 Reich & Tang.)

Over the past year, Fidelity shows the largest asset increase (up $13.4B, or 3.4%), followed by Vanguard (up $11.5B, or 7.2%) and Morgan Stanley (up $15.8B, or 20.5%). Other big gainers since June 30, 2012, include: Schwab (up $9.7B, or 6.4%), SSgA (up $9.3B, or 14.2%), Wells Fargo (up $9.2B, or 8.9%), and Northern (up $9.1 billion, or 13.7%). The biggest declines over 12 months include: JPM (down $12.1B, or 5.1%), Goldman Sachs (down $10.8B, or 8.5%), Federated (down $8.6B, or 3.7%), and First American (down $5.2B, or 12.7%). (Note that money fund assets are very volatile month to month.)

Looking at the largest Global Money Fund Manager Rankings, the combined market share assets of our Money Fund Intelligence XLS (domestic U.S.) and our Money Fund Intelligence International ("offshore), we show these families: Fidelity ($426.0 billion), JPMorgan ($359.6 billion), BlackRock ($238.3 billion), Federated ($231.1 billion), and Goldman ($190.7 billion). Dreyfus, Vanguard, Schwab, Western, and Wells Fargo round out the top 10. These totals include offshore US dollar funds, as well as Euro and Sterling funds converted into US dollar totals. (For more details, see our latest MFI Family & Global rankings e-mail or our MFI XLS and MFI International products.)

Crane Data released its August Money Fund Portfolio Holdings dataset Friday, and our collection of taxable money market securities with data as of July 31, 2013, shows a jump in almost all asset classes with Treasuries, CP, CDs and repo showing the largest monthly gains; CDs and Treasuries remained the largest segments just ahead of repos. Money market securities held by Taxable U.S. money funds overall jumped by $68.9 billion in July (after falling by $30.1 billion in June, increasing by $25.8 billion in May, and falling $9.9 billion in April and $34.6 billion in March) to $2.415 trillion. (Note that our Portfolio Holdings collection is a separate data series from our monthly Money Fund Intelligence XLS and daily MFI Daily collections.) Almost all composition segments, including Treasuries, CP, CDs, Repo, and Agencies, increased in July, while only “Other” and VRDNs declined. CDs remained the largest holding among taxable money funds, followed by closely by Treasuries and Repo, then CP, Agencies, Other, and VRDNs. Money funds' European-affiliated holdings (including repo) rebounded from last month’s plunge (primarily due to repo) from 27.9% to under 29.6%. Below, we review our latest portfolio holdings statistics.

Among all taxable money funds, Certificates of Deposit (CD) holdings increased by $13.5 billion to $493.0 billion, remaining at 20.4%; they remain the largest segment of money fund composition. Treasury holdings increased by $27.9 billion to $485.4 billion (20.1% of holdings) and remained in the second place spot. Repurchase agreement (repo) holdings increased by $13.2 billion to $464.1 billion, or 19.2% of fund assets. Commercial Paper (CP), the fourth largest segment, jumped by $17.2 billion to $414.6 billion (17.2% of holdings). Government Agency Debt increased by $5.7 billion; it now totals $352.2 billion (14.6% of assets). Other holdings, which include Time Deposits, fell by $4.9 billion to $156.6 billion (6.5% of assets). VRDNs held by taxable funds fell again by $3.6 billion to $49.2 billion (2.0% of assets). (Crane Data’s Tax Exempt fund data is released in a separate series.)

Among Prime money funds, CDs still represent almost one-third of holdings, or 32.2%, followed by Commercial Paper (27.4%). The CP totals are primarily Financial Company CP (15.8% of holdings) with Asset-Backed CP making up 6.3% and Other CP (non-financial) making up 5.3%. Prime funds also hold 7.9% in Agencies, 6.5% in Treasury Debt, 5.8% in Other Notes, 2.0% in Other (including Time Deposits), and 2.9% in VRDNs. Prime money fund holdings tracked by Crane Data total $1.512 trillion, or 62.6% of taxable money fund holdings’ total of $2.415 trillion.

European-affiliated holdings jumped $60.2 billion in July to $714.1 billion (among all taxable funds and including repos); their share of holdings rose to 29.6%. Eurozone-affiliated holdings rose sharply too (up $43.2 billion) to $381.6 billion in July; they now account for 15.8% of overall taxable money fund holdings. Asia & Pacific related holdings inched down by $1.6 billion to $290.1 billion (12.0% of the total), while Americas related holdings rose by $9.0 billion on the bounce in Treasuries to $1.410 trillion (58.4% of holdings).

The Repo totals were made up of: Government Agency Repurchase Agreements (up$2.1 billion to $232.6 billion, or 9.6% of total holdings), Treasury Repurchase Agreements (up $11.8 billion to $161.5 billion, or 6.7% of assets and Other Repurchase Agreements (down $778 million to $70.1 billion, or 2.9% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $12.0 billion to $239.2 billion, or 9.9% of assets), Asset Backed Commercial Paper (down $142 million to $94.5 billion, or 3.9%), and Other Commercial Paper (up $5.3 billion to $80.8 billion, or 3.4%).

The 20 largest Issuers to taxable money market funds as of July 31, 2013, include the US Treasury (19.7%, $474.8 billion), Federal Home Loan Bank (7.9%, $190.7 billion), Deutsche Bank AG (3.0%, $71.9B), Federal Home Loan Mortgage Co (2.8%, $66.4B), JP Morgan (2.5%, $60.9B), Federal National Mortgage Association (2.4%, $58.5B), Bank of Nova Scotia (2.4%, $58.1B), Barclays Bank (2.4%, $56.9B), Sumitomo Mitsui Banking Co (2.3%, $55.9B), Bank of Tokyo-Mitsubishi UFJ Ltd (2.2%, $53.7B), RBC (2.2%, $53.5B), Bank of America (2.2%, $53.4B), BNP Paribas (2.2%, $53.1B), Citi (2.2%, $52.6B), Credit Agricole (2.0%, $47.1B), Societe Generale (1.9%, $45.2B), Credit Suisse (1.7%, $41.5B), Toronto-Dominion Bank (1.5%, $36.1B), Bank of Montreal (1.4%, $34.1B), and Mizuho Corporate Bank Ltd (1.4%, $32.9B).

The 10 largest Repo issuers (dealers) (with the amount of repo outstanding and market share among the money funds we track) include: Deutsche Bank ($45.5B, 9.8%), Bank of America ($44.5B, 9.6%), Barclays ($37.5B, 8.1%), BNP Paribas ($36.0B, 7.8%), Citi ($29.0B, 6.3%), RBS ($25.5B, 5.5%), Societe Generale ($24.5B, 5.3%), Goldman Sachs ($24.4B, 5.3%), Credit Suisse ($22.4B, 4.8%), and Credit Agricole ($22.3B, 4.8%).

The 10 largest issuers of CDs (with the amount of CDs issued to our universe and market share) include: Sumitomo Mitsui Banking Co ($49.3B, 10.0%), Bank of Tokyo-Mitsubishi UFJ Ltd ($38.1B, 7.7%), Bank of Nova Scotia ($31.9B, 6.5%), Bank of Montreal ($30.0B, 6.1%), Toronto-Dominion Bank ($28.7B, 5.8%), Mizuho Corporate Bank Ltd ($22.2B, 4.5%), National Australia Bank Ltd ($19.9B, 4.0%), RBC ($16.5B, 3.4%), Canadian Imperial Bank of Commerce ($15.7B, 3.2%), and Norinchukin Bank ($15.1B, 3.1%).

The 10 largest issuers of CP (owned by money funds) as of July 31 include: JP Morgan ($24.5B, 6.9%), Commonwealth Bank of Australia ($17.2B, 4.8%), Westpac Banking Co ($15.6B, 4.4%), General Electric ($14.6B, 4.1%), FMS Wertmanagement ($13.6B, 3.8%), Lloyds TSB Bank PLC ($12.6B, 3.5%), Barclays Bank ($11.3B, 3.2%), Australia & New Zealand Banking Group Ltd ($11.1B, 3.1%), NRW.Bank ($10.4B, 2.9%), and Toyota ($9.6B, 2.7%).

The largest increases among Issuers of money market securities (including Repo) in July were shown by: Deutsche Bank (up $25.2B to $71.9B), US Treasury (up $17.3B to $474.8B), Lloyds TSB Bank PLC (up $14.7B to $23.8B), Societe Generale (up $12.0B to $45.2B), and Citi (up $5.7B to $52.6B). The largest decreases among Issuers included: Credit Suisse (down $7.0B to $41.5B), RBC (down $5.0B to $53.5B), Credit Agricole (down $4.3B to $47.1B), Toronto-Dominion Bank (down $4.2B to $36.1B), and Mizuho Corporate Bank Ltd (down $3.3B to $32.9B).

The United States is still by far the largest segment of country-affiliations with 49.2%, or $1.187 trillion. Canada decreased slightly but remained in second place (9.2%, $221.2B) ahead of France (8.5%, $204.4B). Japan was again fourth (7.1%, $171.9B) and the UK (6.4%, $153.8B) remained fifth. Germany (4.7%, $113.8B) moved ahead of Australia (4.1%, $99.1B) among country-affiliated securities and dealers. (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.) Sweden (3.7%, $88.3B), Switzerland (2.7%, $64.7B), and the Netherlands (2.5%, $59.1B) continued to round out the top 10.

As of July 31, 2013, Taxable money funds held 21.0% of their assets in securities maturing Overnight, and another 14.1% maturing in 2-7 days (35.1% total in 1-7 days). Another 20.9% matures in 8-30 days, while 25.3% matures in the 31-90 day period. The next bucket, 91-180 days, holds 13.7% of taxable securities, and just 5.1% matures beyond 180 days.

Crane Data's Taxable MF Portfolio Holdings (and Money Fund Portfolio Laboratory) were updated Friday, and our MFI International "offshore" Portfolio Holdings will be updated tomorrow (the Tax Exempt MF Holdings will be released later today). Visit our Content center to download files or visit our Portfolio Laboratory to access our "transparency" module and contact us if you'd like to see a sample of our latest Portfolio Holdings Reports or our new Weekly Money Fund Portfolio Holdings collection.

The Federal Reserve Bank of Richmond published an article entitled, "Some Theoretical Considerations Regarding Net Asset Values for Money Market Funds" in its latest "Economic Quarterly." The article, by Huberto M. Ennis, comments in its summary, "The instability of money market mutual funds is a subject of active debate. A new regulatory framework is likely to be implemented soon in the United States. The design of such a framework should depend on an assessment of which is the main economic function fulfilled by these funds. If money funds are providing maturity transformation, then redemption values that permanently reflect the market value of assets may be hard to compute and may undermine the purpose of the funds. If funds are mainly investment managers, then market-based redemption values can be appropriate and increase the stability of the funds."

A press release, entitled, "Richmond Fed's Economic Quarterly Considers Net Asset Values for Money Market Funds," tells us, "The instability of money market mutual funds is a subject of active debate. In the latest issue of Economic Quarterly, Richmond Fed economist Huberto M. Ennis explores a new regulatory framework that is likely to be implemented soon in the United States. The design of such a framework should depend on an assessment of which is the main economic function fulfilled by these funds. If money funds are providing maturity transformation, then redemption values that permanently reflect the market value of assets may be hard to compute and may undermine the purpose of the funds. If funds are mainly investment managers, then market-based redemption values can be appropriate and increase the stability of the funds. You can find the full text of this article and others in the latest issue of Economic Quarterly on our website:"

The paper's "Conclusion" says, "Money market funds experienced considerable distress in 2008 during the U.S. financial crisis. Their resiliency was questioned again in 2011 during the European sovereign crisis (see Chernenko and Sunderam [2012] and Rosengren [2012]). Currently, a generalized concern exists that the instability of money funds may have systemic consequences (Financial Stability Oversight Council 2012). For these reasons, there is a heated ongoing debate about the appropriate reform of the regulatory framework that applies to these funds."

It explains, "In this article, we have presented two models that represent, in a stylized manner, two possible alternative interpretations of the economic function fulfilled by money funds. In both models, money funds may experience waves of withdrawals that resemble runs. The frameworks, however, are not ‡flexible enough to address systemic concerns such as contagion and economy-wide disruptions triggered by the troubles in the money funds industry. Still, some important insights about fund stability and regulation arise from the analysis. One of the main lessons of the article is that the appropriate regulation of money market funds depends on the stand taken with respect to the fundamental economic function performed by the funds."

Ennis writes, "In particular, if money funds are mainly providers of maturity transformation services, then the setting of the redemption value of shares needs to take into account the optimal insurance component involved in this kind of arrangement. Extreme versions of ‡floating net asset values may undermine this function, just as narrow banking tends to undermine the maturity transformation function of banks. Perhaps some instability is inextricably associated with maturity transformation, and trying to completely rule out instability translates into ruling out any degree of maturity transformation. Under this view, stable money funds can, in effect, be redundant institutions."

Finally, he adds, "However, in the second model we presented in this article, we took on the interpretation that money funds are instead investment managers that are able to access, select, and implement beneficial asset-allocation strategies for their investors. Under this view, money funds do not perform any maturity transformation. We learned that in this case a timely adjustment of the funds redemption value of shares (such as a floating NAV) may be conducive to stability and is compatible with the funds intended function. To a certain extent, then, alternative reform-proposals involving NAVs indirectly reflect different perspectives about the main function that money funds perform in the economy."

Today, we cite two more "Comments on Proposed Rule: Money Market Fund Reform; Amendments to Form PF, one opposing the floating NAV option from a small bank trust and one opposing both the floating NAV and "gates" option from a large corporation. The first letter, from Kathy Smith, United Bank, Inc., Charleston, West Virginia, says, "We are writing to express our concern about a recent proposal by the Securities and Exchange Commission ("SEC") which, if adopted, will cause considerable disruptions on how we, as a corporate trustee, fulfill our obligations pursuant to trust indentures, escrow agreements, or similar arrangements where we act in some intermediary capacity. As a part of our responsibilities, we take temporary possession of substantial sums of money that need to be invested in highly liquid vehicles carrying the highest rating from one or more credit rating agencies. In many of our arrangements, we are obliged to adhere to precise schedules as to the cash needs of the account. It has become customary for us to rely on institutional prime money market mutual funds ("institutional prime funds") that hold the requisite ratings to fulfill such needs."

It explains, "Should the SEC implement a rule that would require the prime funds we currently utilize to mark their securities to market on a daily basis, we would be forced to buy and redeem shares at something other than $1.00 per share. This would reverberate through the operational and administrative systems that are currently structured to anticipate shares being purchased and redeemed at $1.00. In virtually all circumstances, our clients' assets require a precise valuation (sometimes by state statute, governing documents or client investment limitations) to ensure seamless and predictable liquidity services. The introduction of a variable net asset value would, in essence, result in what has become a cost effective and highly efficient service reverting to a pre-money market mutual fund business model that existed in the early 1970s. The assembly of a portfolio of individual securities would require the re-pricing of our entire business as a result of the addition of an extra layer of administrative work that the management of individual securities would require."

United's Smith continues, "We are familiar with the alternative proposal set forth in the proposed rule which would grant the board of directors of an institutional prime fund the right to suspend redemptions given the occurrence of certain conditions. We find this alternative to be preferable in that it preserves the feature that makes institutional prime funds so appealing from a cost, administrative and customer service standpoint."

Finally, she writes, "We would urge the SEC, as part of its deliberations, to recognize what a huge impact its decision would have on institutional prime funds and force us to abandon the very feature that allows us to offer the sophisticated and globally competitive corporate trust services that our clients have come to expect from us."

The second comment, from Gregg Murphey, Global Treasury Manager, Novelis, CTP, Atlanta, Georgia, tells us, "I am responsible for overnight investments for Novelis, the world's largest rolled aluminum manufacturing company. We invest our excess cash in Prime Money Funds, and we do so because the funds have a high level of transparency, a proven history of providing safe investment via quality counterparty diversification, with the highest level of liquidity."

He says, "Given the recent rate environment, our sole purpose of investing in Prime Funds is to protect Novelis assets with a diversified investment product. Bank CDs and similar instruments, while belonging in a diversified portfolio, do not provide the same levels of counterparty risk diversification or liquidity as prime funds. My position on the reform suggestions under review is that either the floating NAV or the fees and gates will result in Novelis discontinuing use of Prime Money Funds."

Murphey writes, "In my opinion, the floating NAV will: Encourage redemptions when the NAV is in the money, promoting speculation; Result in additional burden to tax and accounting departments to deal with daily gains and losses; and, Change the nature of a money market security from a cash equivalent to an instrument with more of a speculative nature. The Fee and Gate proposal will: Seriously bring into question one of the greatest strengths of a Prime MMF -- liquidity; A fund who imposes a fee or withholds redemption would sink faster than a fund that breaks the buck under current regulations, which means the tool for the funds would be ineffective; and, Cause runs on funds when news events about an issuer would cause holders to quickly sell their shares before everyone else does, trying to avoid the gate and or fee. In the current world, news events about individual issuers doesn't cause the level of panic that will be present when gates close and fees are imposed."

He continues, "All of this boils down to the axiom that there's no such thing as a risk proof investment. There never was, and there never will be. The proposed changes by the FSOC/SEC will do nothing to change this -- the proposals increase costs, and shift the timing of runs on money funds as a competitive advantage to those who can stay in front of crisis. Since there will be those, like my company, that will no longer participate, funds will be smaller on an ongoing basis, so it will be more likely that redemptions will push funds into a crisis position."

Finally, Murphey adds, "My only hope is that you listen to me and people like me that routinely invest overnight cash and understand the risk reward profile of those investments. The measures you are considering will be a self-fulfilling to ensure the failure of the money fund industry, or best case scenario, making it weaker than it is prior to the regulations. Don't act for the sake of acting alone."

The August issue of Crane Data's Money Fund Intelligence newsletter was posted on our website and e-mailed to subscribers this morning. It features the articles: "Money Fund Expenses, Gross Yields, Hit Record Low," which reviews the record lows reached by our Expense and Gross Yield averages; "Goldman, MS Join JPM in Disclosing Daily Liquidity," which discusses the recent disclosure of daily 1-day and 7-day liquidity levels; and, "Studies, Comments Focus Fire on Floating NAV," which quotes from comment letters and studies on the costs of a floating NAV. We've also updated our Money Fund Wisdom database query system with July 31, 2013, performance statistics and rankings, and our MFI XLS will also be sent out later this morning. (It is already available at our Content center.) Our July 31 Money Fund Portfolio Holdings are scheduled to go out Friday, August 9.

Our Expenses piece says, "The average expense ratio charged by money market mutual funds fell to a record low 0.14% in July (this is our Crane Money Fund Average, a simple average of all taxable money funds), down 2 basis points from the prior month. Our Crane 100 Index, an average of the largest taxable money funds, also fell to a record low of 0.16% (like yields, expense ratios are annualized). The previous record low had been 0.15% (0.17% for the Crane 100) in November and December 2011."

The August issue's lead story adds, "Gross yields for money funds also hit record lows in July 2013. The Crane Money Fund Average 7-Day Gross Yield was 0.16% in July, while the Crane 100 Gross 7-Day was 0.19%. November and December 2011 was also the prior record low for this statistic too (at 0.17% and 0.21%)."

Our story on Daily Liquidity Disclosure comments, "Last month, we reported that J.P. Morgan Asset Management would begin posting daily 1-day and 7-day liquidity measures on its website (​see Crane Data's June 18 News "JPMorgan Gets Jump on SEC Proposal by Posting Liquid Asset Levels"). In the past two weeks, we've learned of two more large money fund complexes that have followed suit. Both Goldman Sachs and Morgan Stanley have begun voluntarily disclosing daily measures of liquidity in some of their money market funds." (See also, July 25 "Goldman Does Daily Liquidity Too; First Comments on SEC Proposals" and July 24 "Morgan Stanley 2nd to Announce Daily 1-​Day, 7-​Day Liquidity Metrics".)

The article on Floating NAV Comments explains, "Though the heavy barrage has yet to begin, some early critiques are already hitting the SEC's floating NAV option hard. The early comment postings on the SEC's Money Market Fund Reform Proposal are, as expected, overwhelmingly opposed to the float. But the big blow this month was a study from Treasury Strategies sponsored by the Chamber of Commerce that estimated the cost of a floating NAV to be in the billions. Given the SEC's recent infatuation with numbers, expect to see more of this kind of analysis."

See the latest issue and future "News" postings for more details, or contact us to request the latest issue.

We learned from mutual fund news publisher ignites that Charles Schwab has filed to launch a series of "enhanced cash" ETFs. The pending Schwab Target Duration ETFs include Schwab TargetDuration 2-Month ETF, Schwab TargetDuration 9-Month ETF, and Schwab TargetDuration 12-Month ETF. The ETF's Investment adviser will be Charles Schwab Investment Management, Inc. and the portfolio manager for all three funds will be Linda Klingman, Managing Director and Head of Taxable Money Market Strategies. No ticker symbols or expense ratios are available yet. (See our last couple mentions of ultra-short bond funds, "More MFs Liquidate: Calvert, Hartford Exit; Bad Timing for Bond Funds (June 27, 2013)" and "Vanguard on Bond Fund Challenges; Good Alternative to Money Funds? (April 25, 2013).")

Schwab TargetDuration 2-Month ETF has its investment objective, "The fund seeks current income consistent with preservation of capital and daily liquidity." Its filing says, "To pursue its goal, it is the fund's policy, under normal circumstances, to invest at least 90% of its net assets in a portfolio of investment grade short-term fixed income securities issued by U.S. and foreign issuers and other short-term investments. The fund will notify its shareholders at least 60 days before changing this policy. The fixed income securities in which the fund may invest include corporate and commercial debt instruments; privately-issued securities; mortgage-backed and asset-backed securities; variable- and floating-rate debt securities; repurchase agreements; money market instruments, including certificates of deposit, commercial paper and asset-backed commercial paper; obligations issued by the U.S. government and its agencies and instrumentalities ... and bank notes and similar demand deposits."

It continues, "The fund may also invest in other investment companies, including other exchange traded funds.... The fund may also invest its assets in money market funds (including funds that are managed by the investment adviser or one of its affiliates), cash and cash equivalents, and other investment grade short-term securities. All of these investments will be denominated in U.S. dollars.... All debt securities purchased by the fund will be rated A- or higher.... `Under normal circumstances, the fund will generally maintain a portfolio duration of less than two months. Duration measures the price sensitivity of a security to interest rate changes."

The Schwab TargetDuration 9-Month ETF has as its investment objective, "The fund seeks a high level of current income consistent with preservation of capital." Its filing says, "Under normal circumstances, the fund will generally maintain a portfolio duration of less than nine months. Duration measures the price sensitivity of a security to interest rate changes. The longer the duration, the more sensitive the portfolio will be to a change in interest rates. As the value of a security changes over time, so will its duration, which in turn will affect the portfolio’s duration. The portfolio manager may adjust the fund's duration within the stated limit based on current and anticipated changes in interest rates. Additionally, under normal circumstances, the fund generally expects to maintain a portfolio maturity (which is the weighted average maturity of all the securities held in the portfolio) of less than eighteen months (1.5 years)."

Finally, Schwab TargetDuration 12-Month ETF has as its investment objective, "The fund seeks maximum current income consistent with preservation of capital." It says, "Under normal circumstances, the fund will generally maintain a portfolio duration of less than twelve months (1 year).... Additionally, under normal circumstances, the fund generally expects to maintain a portfolio maturity (which is the weighted average maturity of all the securities held in the portfolio) of less than twenty-four months (2 years)."

In other news, the Federal Reserve Bank of New York issued a statement entitled, "Statement Regarding Reverse Repurchase Agreements." It says, "As noted in the October 19, 2009, Statement Regarding Reverse Repurchase Agreements, the Federal Reserve Bank of New York has been working internally and with market participants on operational aspects of triparty reverse repurchase agreements to ensure that this tool will be ready to support any reserve draining operations that the Federal Open Market Committee might direct. Beginning this week, the New York Fed intends to conduct another series of small-value reverse repurchase (RRP) transactions using Treasury and MBS collateral. All operations will be open to all eligible reverse repo counterparties."

They add, "Like the earlier operational readiness exercises, this work is a matter of prudent advance planning by the Federal Reserve. The operations have been designed to have no material impact on the availability of reserves or on market rates. Specifically, the aggregate amount of outstanding reverse repo transactions will be very small relative to the level of excess reserves, and the transactions will be conducted at current market rates. These operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future. The results of these operations will be posted on the public website of the Federal Reserve Bank of New York, together with the results for other temporary open market operations. The outstanding amounts of reverse repos are reported as a factor absorbing reserves in Table 1 in the Federal Reserve's H.4.1 statistical release and as liability items in Tables 8 and 9 of that release."

Last week, the SEC issued its Final "Financial Responsibility Rules for Broker-Dealers," which includes several sections (rules 15c3-3 and 15c3-1) that impact money market mutual funds negatively. The SEC's release says, "The Securities and Exchange Commission today announced the adoption of amendments to the net capital, customer protection, books and records, and notification rules for broker-dealers. The amendments to the broker-dealer financial responsibility rules are designed to better protect a broker-dealer's customers and enhance the SEC's ability to monitor and prevent unsound business practices. The rule amendments were approved by a unanimous Commission vote." Mary Jo White, Chair of the SEC, comments, "Investors need to feel confident that their money is safe when it's being held by their broker-dealers. These measures will significantly bolster the protections that our rules already offer."

Stradley Ronon's Joan Swirsky tells us, "The SEC has issued a rule dealing with broker-dealer obligations to maintain reserve accounts and to maintain capital. In the final rule, the SEC declined to enact provisions that were proposed in early 2007 (prior to the financial crisis) that would have eased application of these provisions with respect to money market funds. The SEC explained that the decision to defer these provisions was made in light of the separate reform proposals which are pending for money market funds, to provide the SEC the opportunity to assess the impact of those reforms under these broker-dealer rules."

The SEC's final rule summary explains, "The Securities and Exchange Commission is adopting amendments to the net capital, customer protection, books and records, and notification rules for broker-dealers promulgated under the Securities Exchange Act of 1934. These amendments are designed to address several areas of concern regarding the financial responsibility requirements for broker-dealers. The amendments also update certain financial responsibility requirements and make certain technical amendments."

Of the portions impacting money market funds, Swirsky explains, "Rule 15c3-3 under the Securities Exchange Act of 1934 limits a broker-dealer to depositing cash or "qualified securities" into a bank account it maintains to meet its customer reserve deposit requirements ("special reserve account"). Prior to the amendments, the rule defined the term "qualified security" to include investments in securities issued or guaranteed as to principal and interest by the United States ("U.S. Treasury securities"). To address operational difficulties associated with directly holding and managing a portfolio of U.S. Treasury securities, the 2007 proposal would have expanded the definition to include money market funds that invest solely in securities meeting the definition of "qualified security" in Rule 15c3-3. In a comment letter posted at the SEC website on June 18, 2007, the ICI had suggested that the SEC expand the proposal to include money market funds beyond those that invest solely in U.S. Treasury securities."

She adds, "Rule 15c3-1 seeks to ensure that broker-dealers maintain sufficient liquid capital to protect the assets of customers and to meet their responsibilities to other broker-dealers. When calculating the value of their assets for purposes of establishing their net capital under the rule, broker-dealers must reduce the market value of the securities and commodities they own by certain percentages. The reductions are called "haircuts".... The 2007 proposal would have reduced the "haircut" under Exchange Act Rule 15c3-1 that broker-dealers are required to apply to proprietary positions in money market funds that are registered under the Investment Company Act and subject to Rule 2a-7 from two percent to one percent. The ICI had filed a comment letter stating that the ICI strongly supported reducing the haircut for money market funds. In the final rule, however, the SEC declined to take action with respect to reduce the haircut on money market fund shares, given the pending amendments to Rule 2a-7."

The SEC's rule explains under "Expansion of the Definition of "Qualified Securities" to Include Certain Money Market Funds," "A broker-dealer is limited to depositing cash or qualified securities into the bank account it maintains to meet its customer (and now PAB account) reserve deposit requirements under Rule 15c3-3. Paragraph (a)(6) of Rule 15c3-3 defines qualified securities to mean securities issued by the United States or guaranteed by the United States with respect to principal and interest. This strictly limits the types of assets that can be used to fund a broker-dealer's customer or PAB reserve account. The strict limitation is designed to further the purpose of Rule 15c3-3; namely, that customer assets be segregated and held in a manner that makes them readily available to be returned to the customer. As the Commission noted when first proposing Rule 15c3-3: The operative procedures of the Special [Reserve] Account are designed to protect the integrity of customer-generated funds by insulating them against inroads from the broker-dealer's firm activities, whether they be underwriting, market making, other trading, investing, or mere speculation in securities, meeting overhead or any other nature whatever. The Special [Reserve] Account should achieve a virtual 100% protection to customers with respect to the carrying and use of customers' deposits or credit balances which is mandated by Section 7(d) of the SIPC Act."

The release continues, "In response to a petition for rulemaking, the Commission proposed a limited expansion of the definition of qualified security to include shares of an unaffiliated money market fund that: (1) is described in Rule 2a-7 under the Investment Company Act of 1940; (2) invests solely in securities issued by the United States or guaranteed by the United States as to interest and principal; (3) agrees to redeem fund shares in cash no later than the business day following a redemption request by a shareholder; and (4) has net assets equal to at least 10 times the value of the shares deposited by the broker-dealer in its customer reserve account. Twenty commenters addressed the proposed amendment. A majority of commenters supported the proposal and generally argued that the definition of qualified security should be expanded further to include more types of instruments. One commenter noted that permitting the use of certain money market funds to make up the required reserve account deposit would introduce "an intermediary (namely, the holding company or money market fund) at which problems might arise." The commenter also noted that a number of SIPA liquidations have involved the mishandling of money market or mutual fund shares or the confirmations of purchases of nonexistent "money market funds.""

They add, "The Commission recently has proposed substantial amendments to its rules on money market funds. In light of these proposed amendments, the Commission is deferring consideration of any further expansion of the definition of qualified security in Rule 15c3-3 at this time. This will allow the Commission to assess the potential impact of any money market fund reforms it may adopt and whether any such impact would have consequences for the customer protection objective of the reserve account requirement in Rule 15c3-3."

Later in the Rule, they write, "The Commission is adopting an amendment to paragraph (c)(2)(vi)(D)(1) of Rule 15c3-1 to clarify that a money market fund, for the purposes of paragraph (c)(2)(vi)(D)(1), is a fund described in Rule 2a-7 under the Investment Company Act of 1940 ("Rule 2a-7"). The Commission did not receive any comments on this proposal and is adopting it, as proposed."

Under "Proposed Haircut Reduction from 2% to 1%," the SEC states, "The Commission proposed an amendment to reduce the "haircut" that broker-dealers apply under Rule 15c3-1 for money market funds. In 1982, the Commission adopted a 2% haircut requirement for redeemable securities of money market funds. In 1991, the Commission adopted certain amendments to Rule 2a-7 that strengthened the risk-limiting investment restrictions for money market funds. Based on the enhancements to Rule 2a-7, the Commission proposed to amend paragraph (c)(2)(vi)(D)(1) of Rule 15c3-1 to reduce the haircut on such funds from 2% to 1% in order to better align the net capital charge with the risk associated with holding shares of a money market fund. In addition to the general request for comments in the proposing release, the Commission also specifically requested comments regarding whether the haircut for certain types of money market funds should be reduced to 0% as suggested in a petition for rulemaking submitted to the Commission."

They continue, "The Commission received a total of 14 responses from 12 different commenters regarding this proposed amendment. All of the commenters supported a reduction in the haircut for money market funds and urged that the haircut be reduced below the proposed 1%, with the majority proposing a haircut of 0% for "top-rated" money market funds (i.e., those with the highest ratings). Commenters cited the safety record of money market funds, in particular AAA-rated money market funds, in support of imposing lower haircuts. Several commenters argued that top-rated money market funds were more liquid and posed less credit and interest rate risk than other instruments and suggested haircuts of 1/8 of 1% or even 0%."

Finally, the SEC comments, "As discussed above in section II.E.6.ii. of this release, the Commission recently proposed substantial amendments to its money market fund rules. In light of these proposed amendments, the Commission is deferring consideration of a reduction of the haircut for money market funds in Rule 15c3-1 at this time. Therefore, the haircut that broker-dealers apply for money market funds will remain at 2% under paragraph (c)(2)(vi)(D)(1) of Rule 15c3-1. Deferring action will allow the Commission to assess the potential impact of any money market fund reforms it may adopt and whether any such impact would have consequences for the net liquid asset standard of Rule 15c3-1."

The U.S. Treasury in its "August 2013 Quarterly Refunding Statement of Assistant Secretary Rutherford announced the details of its Floating Rate Note (FRN) program. The statement says, "Treasury published in the Federal Register today a final rule for the Floating Rate Note (FRN) program. The FRN is the first new product that Treasury has introduced since TIPS over 15 years ago. As indicated at the May Quarterly Refunding, the FRN will complement our existing suite of securities and help Treasury achieve its objective of financing the government at the lowest cost over time. Treasury anticipates that the first FRN auction will occur in January 2014. This timeframe should provide sufficient time for market participants to adjust analytical systems and operational processes to accommodate the new product. Treasury will provide additional information regarding the potential sizes for the first auction of FRNs at the November Quarterly Refunding."

The Treasury's Auction Regulations says on the new "Floating Rate Notes," "On July 31, 2013, Treasury published a Final Rule to accommodate the auction and issuance of floating rate notes. In addition, the amendment makes certain technical clarifications and conforming changes. Treasury has provided a list of Frequently Asked Questions and a Term Sheet that summarizes key provisions and features of these securities."

It adds, "On December 5, 2012, Treasury published an Advance Notice of Proposed Rulemaking (ANPR) soliciting comments on the potential issuance of Treasury floating rate securities. The ANPR requested comments by January 22, 2013 on the design details, terms and conditions, and any other relevant issues. View comment letters. On March 19, 2012, Treasury published a Notice and Request for Information asking for comments by April 18, 2012 on the potential issuance of Treasury floating rate notes. View comment letters."

The Final Rule for the "Sale and Issue of Marketable Book-Entry Treasury Bills, Notes, and Bonds," explains, "This final rule amends Treasury's marketable securities auction rules to accommodate the public offering of a new type of marketable security with a floating rate interest payment. In addition, the amendment makes certain technical clarifications and conforming changes."

At our recent Money Fund Symposium, the Treasury's Assistant Secretary for Financial Markets, Matt Rutherford, commented (which we quoted in our July Money Fund Intelligence), "Of course Treasury has a very keen interest in well-functioning treasury markets, including the very short end of the curve and our bill market. Our monitoring of market functioning obviously involves studying asset prices movement but it also involves significant communications with market participants such as yourselves.... This is critically important, having an active dialog with dealers and investors, to understand what's happening on a daily basis, and it really is a key input into our debt management strategy."

He told the Baltimore audience, "And as many of you know the broad contours of that strategy really haven't changed since 2009. We remain on a path to continue to extend the weighted average maturity of our debt. At the depths of the financial crisis this figure was right around 48 months, and today it has risen to about 65 months. Given the uncertainty in fiscal forecasts we don't explicitly set a target for where we expect the average maturity to go to. However, I would say that I expect a gradual increase in the average maturity in over the next several years. As you know, extending the WAM of our debt has led to a decline in the stock of Treasury bills. In fact, bills have fallen from their high of $2.1 trillion during the financial crisis to their current level of right around $1.6 trillion. As a percentage of the portfolio, bills have fallen to just under 15%."

Rutherford commented on FRNs, "We understand the importance of well-functioning money markets, and in that spirit we are building a floating rate note program and this will mark the first new security the Fed has offered since TIPS were introduced back in 1997. Our goals here are very straightforward. We'd like to offer the market a high-quality, low duration instrument, such as T-bills, with a longer tenor. At first we'll be simply r`eplacing some T-bill issuance with floating rate notes <b:>`_, so those will not add any increments of interest rates into our portfolio. But going forward there will be another tool in our tool kit, which everyone could agree is important given the financing uncertainties that we face."

Moody's Investors Service sent out a press release Tuesday entitled, "Moody's: Euro money market funds suffer large outflows in Q2; credit deterioration of USD prime funds and sterling funds." It says, "Prime euro-denominated money market funds (MMFs) suffered a near 12% drop in assets under management (AUM) to EUR66.1 billion, as investors keep searching for higher yields. US Prime and offshore USD MMFs also recorded a decline in AUM of 3.2% to USD640 and 2% to USD237, respectively, whereas sterling denominated MMFs saw an increase in AUM by 3.2% to GBP118.5 billion during the last quarter." Crane Data's Money Fund Intelligence International shows Euro money fund assets fell by E8.2 billion in Q2, or 10.0%, but assets rebounded by E4.0 billion to E78.1 billion in July (through 7/30). Our MFII shows USD assets fell $18.4 billon (down 4.8%) in Q2 but rose $1.9 billion in July to $371.0 billion, while GBP assets fell L0.4 billion in Q2 but have surged L16.3 billion in July to L123.7 pound sterling. (The Moody's release and MFII info refer to "offshore" money market funds marketed to global multinational companies; these are not available to U.S. or individual investors.)

The Moody's release tells us, "The majority of MMFs continued to increase their exposure to European banks in Q2, reflecting subsiding concerns about Europe's financial system. Sterling-denominated and offshore USD MMFs increased their exposure to European financial institutions by GBP4.2 billion to 53.1% of total investments (GBP62.4 billion), and USD5 billion to 35% of total investments (USD91 billion), respectively. Moody's analysis is based on the portfolios of all Moody's-rated MMFs in Q2 2013. For the US dollar funds, the data covers 41 US Prime MMFs and 29 European and offshore US dollar-denominated MMFs. For the euro-denominated and sterling-denominated MMFs, the data covers 22 funds domiciled in Europe for each (i.e., 44 in total)."

It explains, "Overall, the credit profiles of euro-denominated funds stabilised, while the profiles of US prime and sterling MMFs continued to experience some deterioration during Q2 2013. Portfolios' duration and diversification improved for euro- and sterling-denominated funds.... Given the low interest-rate environment and low yields across the sector, Euro-denominated MMFs experienced significant outflows, and the combined AUM decreased by 11.6% to E66.1 billion during Q2. The funds' aggregate exposure to European financial institutions decreased by 5% to E28.2 billion at the end of June, from E29.7 billion at the beginning of the quarter. However, due to the AUM decrease, exposure increased in relative terms to 43% of AUM from 40% over the period. Exposure to French financial institutions recorded a sustained decline -- dropping by 23% (EUR2.5 billion) to EUR8.3 billion. At the same time, investments in highly rated Swedish banks increased by 12% to EUR6.3 billion."

Moody’s release continues, "Overall, the credit profiles of euro-denominated MMFs stabilised, with "barbell" strategy allocations, reflected by the 25% decrease in exposure to Aa1-rated securities, which was driven by reduced investments in repurchase agreements, and an increase in investments rated Aaa (+14%), Aa3 (+10%) and A1 (+22%). Given the flatness of the short end of the yield curve, prime funds have decreased their weighted-average maturity (WAM) by 2.4 days to the lowest level in 2013 at 41.2 days from 43.69 days on average. The decrease in the WAM was driven by higher exposure to securities maturing within one month (+9%) at the expense of relatively longer-dated securities with maturities ranging between one and three months (-15%). The neutral changes in the credit profiles coupled with the WAM decrease contributed to the stabilisation of the funds' sensitivity to market risk. Funds' stressed net asset value at the end of Q2 was 0.9922 on average, virtually unchanged from the beginning of the quarter."

It adds, "Both US Prime MMFs and offshore USD MMFs have shown increased exposures to European financial institutions, rising by $2 billion to around 27% of total investments ($174 billion) and by $5 billion to 35% of total investments ($91), respectively. US Prime Funds increased exposure to French banks ($43 billion from $37 billion), and reduced exposure to Swedish banks ($37 billion from $46 billion) due to continuing tightening by the Swedish central bank. The credit profiles of USD denominated MMFs experienced a modest deterioration in Q2 2013 due to fund managers' continued search for higher yields and limited asset supply. Investments rated Aa3 and higher dropped by 4.3% in US domiciled funds and 6.3% in European and offshore domiciled funds. Securities rated Aaa moved down to approximately 19% and 16% of MMF investments, from roughly 23% and 20% in March for US domiciled and offshore domiciled funds, respectively."

Moody’s writes, "MMFs sensitivity to market risk increased modestly in this quarter due to the increased exposure to slightly longer dated securities combined with the modest deterioration in the credit profile. For US domiciled funds, stressed net asset value (NAV) declined to an average 0.9917 at the end of June from 0.9923 at the end of March. For European and offshore funds, stressed NAV declined to an average of 0.9918 at the end of June from 0.9926 at the end of March. At quarter-end, overnight liquidity remained at elevated levels in US domiciled funds, reaching 33%, down from prior quarter levels of approximately 39%. European and offshore funds have remained in a tighter range at around 35%. Treasury and repurchase agreements backed by Treasury securities continue to be a large source of liquidity for US domiciled funds at 24% of total investments at the end of Q2 2013."

The release tells us, "Exposure of prime sterling-denominated funds to European financial institutions increased, both in absolute terms (+GBP4.2 billion at GBP62.4 billion) and relative terms at 53.1% of combined funds' AUM from 50.6% at the beginning of the quarter. The bulk of this increase is driven by higher investments in Swiss banks (+GBP1.8 billion), Swedish banks (+GBP1.7 billion) and French banks (+GBP1.2 billion). Credit profiles experienced a negative shift in Q2. Whilst exposure to A-rated securities increased to 46% of funds' assets from 39%, investments in Aaa- and Aa-rated securities decreased to 9% from 13% and to 45% from 48%, respectively."

Finally, Moody’s says, "Due to the low-yield environment, especially at the short end of the curve, prime funds have increased their WAM by 1.5 days to 42 days -- the highest level over one year. The increase in WAM was driven by fund managers' search for higher yield. After the peak reached in April of average overnight liquidity above one-third of funds' AUM, the liquidity level trended down to 28.3% of AUM, in line with that of the previous quarter-end. Given the increased exposure to relatively long-dated securities, combined with the deterioration in funds' credit profiles, MMFs' sensitivity to market risk increased. Their stressed net asset value deteriorated to 0.9919 on average at the end of Q2 from 0.9921 at the beginning of the quarter. Funds' diversification improved, as their top three obligor concentration ratio dropped to 17.9% of AUM, the lowest level in 12 months."

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