We go back to the well of the 2013 AFP Liquidity Survey, this time examining the Association for Financial Professionals' comments on "Multi-Family Trading Portals and on Money Market Mutual Funds. AFP writes on portals, "Electronic, multi-family trading portals allow organizations to compare investment choices and gain more transparency around co-mingled assets. The trading portals help companies better manage counterparty risk exposure and make more informed decisions about their investment mix. In executing short-term investment transactions, trading portals can also lower the costs of managing and administering an organization's short-term investments. Thirty-four percent of organizations use an electronic, multi-family trading portal to execute at least a portion of their short-term investment transactions."
The survey explains, "Large organizations and those that are publicly held are much more likely than smaller and privately held ones to use a multi-family trading portal, with 46 percent and 44 percent, respectively, of such companies doing so. While organizations can use electronic trading portals to trade a number of investment vehicles, they do so primarily to trade prime MMFs (cited by 64 percent of respondents) and Treasury MMFs (53 percent). About one in three organizations that use an electronic trading portal do so to manage bank time deposits. Fifteen percent use portals for direct investment in Treasury/government securities and 13 percent use them for transactions involving holdings of commercial paper."
AFP's section on Money Market Funds (MMFs) tells us, "When selecting money market funds, 54 percent of financial professionals cite yield as a primary consideration. Indeed, yield is the leading factor in the current survey, unlike in recent years. Fund ratings is the second most common driver in the selection of funds, cited by 52 percent of survey respondents, down from 60 percent last year. Fund sponsorship status as part of a bank relationship and counterparty risk are also factors, cited by 47 percent and 42 percent of financial professionals."
It continues, "Even as allocations to money funds declined during the survey period, yield is the primary driver behind fund selection. On par with fund ratings, the popularity of yield likely reflects the transparency in reporting requirements and regulations put in place several years ago, along with a more positive outlook on credit expectations and counterparty risk of underlying investments. Also notable is the third-place ranking of fund sponsor (as part of the bank relationship) as the primary factor in selecting a fund. With many companies allocating over half of their balances to bank deposits and almost half of the money funds selected as part of a bank relationship mix, one might infer there's even greater focus in incorporating money funds in the bank relationship process."
AFP says of "Reforms in rules governing money market funds," "MMFs continue to be a top priority for policymakers. The Securities and Exchange Commission (SEC) offered its most recent proposals in June 2013. Proposed changes include those that would (1) require the value of MMF shares to fluctuate and (2) limit redemptions or charge fees for full redemptions of MMF holdings. The first proposal, most commonly referred to as floating the net asset value (NAV), would require MMF shares to fluctuate on prime institutional funds. This would remove the special exemptions that allow MMFs to use amortized-cost accounting and rounding to maintain stable NAVs. The second rule change would effectively limit or charge fees for full redemptions of MMF holdings. Under such a reform scenario, funds could impose liquidity fees, potentially coupled with temporary "gates" on redemptions."
Finally, the survey adds, "Currently, over three-quarters of organizations consider money funds as a destination for corporate cash, including more than four in five large organizations with annual revenues of at least $1 billion. The differences in responses across organization demographics also reveal nuances in the level of support of prime funds versus government-only funds. Almost half of the respondents consider all money funds as appropriate investment vehicles. Whether they invest in the funds is a different story, given that current allocation in money market funds is only 16 percent and contingent on regulatory matters yet to be determined."
