Compliance June 24, 2009

SEC Proposes Money Market Fund Improvements

The Securities and Exchange Commission (SEC) has voted unanimously to propose rule amendments to significantly strengthen the regulatory framework for money market funds.
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The goal of the amendments is to increase the funds’ resilience to economic stresses and reduce the risks of runs on the funds. According to an SEC press release, the proposed amendments would, among other things:

  • Require that money market funds have certain minimum percentages of their assets in cash or securities that can be readily converted to cash, to pay redeeming investors.
  • Shorten the weighted average maturity limits for money market fund portfolios (from 90 days to 60 days).
  • Limit money market funds to investing in only the highest quality securities (i.e., eliminate their ability to invest in so-called “Second Tier” securities).
  • Require funds to stress test fund portfolios periodically to determine whether the fund can withstand market turbulence.

The proposals also would require money market funds to report their portfolio holdings monthly to the Commission and post them on their Web sites; require funds to be able to process purchases and redemptions at a price other than $1; and permit a money market fund that has “broken the buck” and decided to liquidate to suspend redemptions while the fund undertakes an orderly liquidation of assets.

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The SEC is seeking public comment on the proposals and other issues related to the regulation of money market funds, including whether money market funds should, like other types of mutual funds, affect shareholder transactions at the market-based net asset value (i.e., whether they should have “floating” rather than stabilized net asset values), and whether to require that funds satisfy redemption requests in excess of a certain size through in-kind redemptions.

The announcement said the Commission is also is seeking comment on other issues, including alternatives with respect to the role of credit rating agencies in money market fund regulation.

Public comments on today’s proposed rule amendments must be received by the Commission within 60 days after their publication in the Federal Register.

The SEC said the full text of the proposed rule amendments will be posted to its Web site at www.sec.gov as soon as possible.

The Markets June 24, 2009

May Fund Flows Follow April Trends

Stock and bond funds experienced net inflows of $55.5 billion in May, according to the Financial Research Corporation (FRC).
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The Corporate Bond objective led the net inflow category with $20.9 billion, followed by the Domestic Equity objective with $12.5 billion—the same two objectives that led in April (see “Investors Choose Corporate Bonds in April“). The International/Global Equity objective took in $10.9 billion; Tax-Free Bond posted net inflows of $7.9 billion; Government Bond saw a $2.2 billion net intake, and the International/Global Fixed Income objective took in $1 billion.

By Morningstar category, investors chose Intermediate-Term Bond funds, which received $10.7 billion, FRC data showed. Diversified Emerging Markets funds posted a $4.4 net inflow, while Short-Term Bond funds ($4.0 billion), High-Yield Bond funds ($3.8 billion), and Pacific/Asia ex-Japan Stock funds ($3.7 billion) rounded out the top five.

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The PIMCO Total Return fund was again the best-selling fund for the month with a net inflow of $3.2 billion. BGI’s iShares Brazil fund came in second with $1.6 billion of monthly net flows. Vanguard’s Short-Term Investment fund ($1.2 billion), Direxion’s Final Bear 3X ($1.1 billion), and BGI’s iShares MSCI Emerging Market ($1.1 billion) rounded out the top five.

More information is available at www.frcnet.com.

 

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