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)."
