Note: Money market mutual funds and Crane Data are closed for the Good Friday Holiday. Happy Easter and Passover! Our daily News and Money Fund Intelligence Daily will resume publication on Monday.... Online money market fund trading "portal" Institutional Cash Distributors will distribute StoneCastle Partner's Federally Insured Cash Account (FICA), a structured or "amalgamated" FDIC-insured bank deposit product, the two companies announced today. The ICD/StoneCastle press release, entitled, "ICD Enters Agreement for Exclusive Cash Management Portal Distribution of StoneCastle's FICA Product," states, "Institutional Cash Distributors (ICD) announced it has reached an agreement with StoneCastle Cash Management, LLC ("StoneCastle") to distribute its Federally Insured Cash Account ("FICA") product through ICD's global SaaS trading platform, ICD Portal. FICA, a leading non-term FDIC insured vehicle for institutions, meets the needs of institutional investors by striving to achieve competitive yields among FDIC insurance products and providing twice-weekly liquidity." FICA and other amalgamated FDIC insured deposit programs take deposits larger than the $250,000 insurance limit and break them into smaller insured blocks spread out across a network of banks.
Jeff Jellison, ICD's CEO Americas, comments, "Basel III regulations and future MMF reform are pushing corporate treasury to broaden their asset allocation strategies. StoneCastle's FICA product is an excellent product addition as it enables institutions to have the ability to enhance their overall portfolio return while reducing risk and providing twice-weekly liquidity. The integrated solution will provide ICD's Fortune 500 clients the opportunity to efficiently access the FICA product and have the client FICA positions included in ICD Portal's comprehensive analytics."
StoneCastle Cash Management President Eric Lansky adds, "We are excited to have StoneCastle's FICA product available on the ICD Portal. Bringing the leading FDIC insured cash solution to one of the world's largest portals ensures all treasurers have the opportunity to safely enhance the yield of their cash without liquidity restrictions associated with a term product." The release also says, "StoneCastle's FICA product enables corporations to strengthen their portfolio's capital preservation through non-term government insured deposits while also offering a competitive yield compared to traditional cash vehicles."
While this announcement is one of the first indications that "amalgamated" FDIC products are spreading to the institutional marketplace, FDIC-insured brokerage "sweep" accounts have also been in the news in recent weeks. Reich & Tang announced that it was liquidating its money market funds and focusing on its suite of FDIC-insured products. (See our March 13 "Link of the Day," "Reich & Tang Announces Liquidation of Money Market Mutual Funds," where R&T CEO Michael Lydon commented, "The streamlining of our operations to focus on our FDIC deposit programs enables Reich & Tang to invest all of its resources into these programs and carve deeper into its niche as an expert in the deposit, liquidity, and short-term capital markets.") Note: Crane Data will take a closer look at this segment of the cash management business in the pending April issue of our Money Fund Intelligence newsletter, which will ship April 8.
In other news, the Fed's Stanley Fischer spoke earlier this week on "Nonbank Financial Intermediation, Financial Stability, and the Road Forward," and mentioned money market funds several times. He stated, "It is well known that solvency and liquidity can be difficult to separate during stress periods because fears about solvency, even if unfounded, can prompt a run. Thus, one could also imagine promoting both solvency and liquidity at some nonbanks by imposing restrictions on their structure or activities in ways that reduce the likelihood of runs. An example of this is recent changes by the Securities and Exchange Commission (SEC) in regulations for prime money market mutual funds."
Fischer explained, "Starting in 2016, prime institutional money funds will be required to publish a floating net asset value rather than a stable value of $1 per unit. Stable-value funds, as we saw during the crisis, can be vulnerable to an unexpected "break the buck" event that leads to a run. Under the new rules, funds can also impose limitations on withdrawals of liabilities and can impose liability redemption fees. The SEC considered requiring money market funds to hold some capital but chose not to do so. Only time will tell whether the adopted reforms have the intended run-damping effects, but if they do, capital will be much less necessary."
He continued, "Besides the new money market mutual fund rules that I have already mentioned, a fourth example is additional data collection on specific holdings of money funds, which has enhanced stability by providing investors with more information to better evaluate risks. In addition, the Dodd-Frank Act mandated the establishment of the Office of Financial Research in order to help promote financial stability through the measurement and analysis of risks, the conduct of essential research, and the collection and standardization of financial data. Data collection has begun for hedge funds and progress is being made in collecting data on repurchase agreements and securities lending. Nevertheless, some nonbank firms and activities--including concerning the volume and uses of derivatives--are still opaque."
Finally, SEC Commissioner Luis Aguilar also recently addressed disclosure and "transparency" on March 20. He said, "Finally, another example of the benefits of collecting real-time data information can be found with respect to money market funds. The financial crisis made clear that the information being received by the Commission was too stale to be of regulatory use. When a prominent money market fund "broke the buck," and other funds came under pressure, we simply did not have the data at hand to determine what other funds could "break the buck"."
Aguilar explained, "Accordingly, the Commission promulgated a rule to require money market funds to provide monthly disclosures of their investment portfolios. This new data has proven invaluable, as it allows the Commission to put its finger on the pulse of these funds, and better monitor their activities. For example, this new data allowed the SEC staff to monitor closely whether and how money market funds were adjusting their holdings during the Eurozone crisis in 2011. In particular, this data allowed the staff to determine that money market funds were not -- as had been widely speculated -- overexposed to Irish banks and other European securities during the Eurozone crisis."
