It seems that the Financial Stability Oversight Council is getting annoyed at SEC footdragging on the MMF issue and has issued its own discussion paper:
Based on this proposed determination, the Council seeks comment on the proposed recommendations for structural reforms of MMFs that reduce the risk of runs and significant problems spreading through the financial system stemming from the practices and activities described above. The Council is proposing three alternatives for consideration:
- • Alternative One: Floating Net Asset Value. Require MMFs to have a floating net asset value (“NAV”) per share by removing the special exemption that currently allows MMFs to utilize amortized cost accounting and/or penny rounding to maintain a stable NAV. The value of MMFs’ shares would not be fixed at $1.00 and would reflect the actual market value of the underlying portfolio holdings, consistent with the requirements that apply to all other mutual funds.
- • Alternative Two: Stable NAV with NAV Buffer and “Minimum Balance at Risk.” Require MMFs to have an NAV buffer with a tailored amount of assets of up to 1 percent to absorb day-to-day fluctuations in the value of the funds’ portfolio securities and allow the funds to maintain a stable NAV. The NAV buffer would have an appropriate transition period and could be raised through various methods. The NAV buffer would be paired with a requirement that 3 percent of a shareholder’s highest account value in excess of $100,000 during the previous 30 days — a minimum balance at risk (MBR) — be made available for redemption on a delayed basis. Most redemptions would be unaffected by this requirement, but redemptions of an investor’s MBR itself would be delayed for 30 days. In the event that an MMF suffers losses that exceed its NAV buffer, the losses would be borne first by the MBRs of shareholders who have recently redeemed, creating a disincentive to redeem and providing protection for shareholders who remain in the fund. These requirements would not apply to Treasury MMFs, and the MBR requirement would not apply to investors with account balances below $100,000.
- • Alternative Three: Stable NAV with NAV Buffer and Other Measures. Require MMFs to have a risk-based NAV buffer of 3 percent to provide explicit loss-absorption capacity that could be combined with other measures to enhance the effectiveness of the buffer and potentially increase the resiliency of MMFs. Other measures could include more stringent investment diversification requirements, increased minimum liquidity levels, and more robust disclosure requirements. The NAV buffer would have an appropriate transition period and could be raised through various methods. To the extent that it can be adequately demonstrated that more stringent investment diversification requirements, alone or in combination with other measures, complement the NAV buffer and further reduce the vulnerabilities of MMFs, the Council could include these measures in its final recommendation and would reduce the size of the NAV buffer required under this alternative accordingly.
I like #3. SEC Commissioner Luis Aguilar, who has opposed meaningful reform, is hastily covering his ass by focussing on migration to unregulated funds:
The outflow of money fund assets to an unregulated market is a significant systemic risk concern, and can result in harm to our market and investors. As was stated by an SEC spokesperson, this was not a concern shared by the SEC staff.
However, the SEC staff’s recent report has now identified the issue of migration to unregulated products and is, for the first time, offering a more in-depth analysis. Moreover, the new Director of Investment Management, Norm Champ, who has experience with unregulated funds, has indicated to me that the staff is now actively considering this issue.
Additionally, both Secretary Geithner and FSOC have expressly raised the need to address the concern of money fund assets migrating to an opaque, unregulated market as a result of structural changes to money market funds.
The serious consideration by the SEC staff and FSOC of the potential migration of money fund assets to opaque, unregulated funds is also a welcome development.
The FSOC paper used the word “unregulated” exactly once:
The Council recognizes that regulated and unregulated or less-regulated cash management products (such as unregistered private liquidity funds) other than MMFs may pose risks that are similar to those posed by MMFs, and that further MMF reforms could increase demand for non-MMF cash management products. The Council seeks comment on other possible reforms that would address risks that might arise from a migration to non-MMF cash management products. Further, the Council is not considering MMF reform in isolation. The Council and its members intend to use their authorities, where appropriate and within their jurisdictions, to address any risks to financial stability that may arise from various products within the cash management industry in a consistent manner. Such consistency would be designed to reduce or eliminate any regulatory gaps that could result in risks to financial stability if cash management products with similar risks are subject to dissimilar standards.
The extra report Aguilar was whining about has been published: Response to Questions Posed by Commissioners Aguilar, Paredes, and Gallagher:
Third, the Commissioners asked how money market funds would likely have performed during the events of September 2008 had the 2010 reforms been in place at the time. The effect of heightened liquidity standards on fund resiliency, given specific levels of capital losses and redemption activity, is examined using money market fund portfolio holdings in September 2008. The findings indicate that funds are more resilient now to both portfolio losses and investor redemptions than they were in 2008. That being said, no fund would have been able to withstand the losses that The Reserve Primary Fund incurred in 2008 without breaking the buck, and nothing in the 2010 reforms would have prevented The Reserve Primary Fund’s holding of Lehman Brothers debt.
Well, of course. The only thing that’s going to allow a fund to maintain par value in the face of a significant default is capital. Duh!
Special dividends are all the rage:
So far this quarter, U.S. companies have pledged more than $21-billion (U.S.) in one-off dividends – and that’s not including early payment of regular ones. Shareholders receiving them will be able to book the gains at the 15-per-cent tax rate currently in place rather than the worst-case 39.6 per cent scheduled to go into effect next year if President Barack Obama and Congress don’t agree on an alternative rate.
…
If this quarter’s special dividends alone were instead paid out next year with the highest feasible tax rates in force, the U.S. government’s coffers would be at least $5-billion heavier in a few months’ time.
Enbridge Inc. was confirmed at Pfd-2(low) by DBRS:
The ratings reflect (1) a relatively strong business risk profile, (2) pressure on the Company’s near-to-medium-term credit metrics and (3) results under the 10-year Competitive Tolling Settlement (CTS) effective July 1, 2011.
RioCan Real Estate Investment Trust was confirmed at Pfd-3(high) by DBRS:
following the Trust’s announcement that that it has entered into a purchase and sale agreement (the Agreement) to acquire a $1.1 million portfolio of Canadian retail properties, including five regional malls and three grocery-anchored unenclosed shopping centres.
The properties are currently owned by Primaris Retail REIT (Primaris). Pursuant to the Agreement, RioCan will acquire a 100% interest in six properties and a 50% interest in two properties. The Agreement is in support (and subject to completion) of the proposed offer to acquire Primaris by a KingSett Capital-led consortium (the Offer), which was announced earlier today.
The confirmation is based on the fact that the potential acquisition, totaling $1.1 billion, would represent only approximately 10% of RioCan’s current total assets. In addition, the target properties are considered to be good quality assets that are well located in major Canadian markets.
In terms of financing, the potential acquisition would be funded with $635 million of new fully-underwritten debt financing commitments from The Toronto-Dominion Bank and the assumption of $499 million of debt. While this would temporarily increase leverage to approximately 49% total debt-to-capital, RioCan has stated its intention to repay a meaningful portion of the incremental debt within six to nine months, primarily with proceeds from asset sales. Despite the increase in leverage, DBRS believes RioCan’s EBITDA coverage ratio (including capitalized interest), with the additional operating income generated from the targeted properties, should stay close to 2.5 times (x), a level well within the range acceptable for the current rating category.
I continue to be fascinated by the concept of converting atmospheric CO2 into usable energy, preferably by using sunlight as the energy source. Now I learn that there’s a project at my alma mater delving into that very thing. My alma mater wants money from me … I suggest that they simply ask the Ontario government to stop blowing cash on second rate solar technology and plough the money into research that might lead to something that actually works.
I urge all readers to remember that Christmas is a time to give to the less fortunate. And who could be less fortunate than the owner of a telemarketting firm?:
The Cancer Society’s 2010 contract with InfoCision for a telemarketing campaign called Notes to Neighbors estimated the charity would receive 44 percent of the money raised. Solicitors used scripts, approved by the Society, falsely claiming that 70 percent of the money raised would go to the charity.
That year, InfoCision kept 100 percent of the $5.3 million it raised for the charity, according to Cancer Society filings with the IRS and the state of Maine.
The American Diabetes Association approved a script the same year for use by InfoCision telemarketers.
“Overall, 75 percent of every dollar received goes directly to serving people with diabetes and their families,” the script says.
The Association’s fundraising contract for that period estimated the Association would receive just 15 percent, with the rest going to InfoCision.
Other of the nation’s largest health charities, including the American Heart Association, the American Lung Association and the March of Dimes, have hired InfoCision during the past decade. The telemarketer brought in a total of $425.5 million for more than 30 nonprofits from 2007 to 2010, keeping $220.6 million, or 52 percent, according to state-filed records.
It was a mixed day for the Canadian preferred share market, with PerpetualPremiums down 8bp, FixedResets off 6bp and DeemedRetractibles gaining 5bp. Volatility was average. Volume was above average, dominated by recent issues.
PerpetualDiscounts now yield 4.87%, equivalent to 6.33% interest at the standard conversion factor of 1.3x. Long corporates now yield about 4.2%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 215bp, unchanged from the November 28 report.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0399 % | 2,473.0 |
| FixedFloater | 4.13 % | 3.48 % | 27,406 | 18.32 | 1 | 0.6124 % | 3,895.7 |
| Floater | 2.79 % | 3.01 % | 58,866 | 19.64 | 4 | -0.0399 % | 2,670.2 |
| OpRet | 4.59 % | 1.53 % | 36,979 | 0.53 | 4 | 0.0852 % | 2,602.2 |
| SplitShare | 4.67 % | 4.83 % | 67,940 | 4.43 | 2 | 0.0814 % | 2,849.2 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0852 % | 2,379.5 |
| Perpetual-Premium | 5.25 % | 1.58 % | 71,767 | 0.84 | 30 | -0.0839 % | 2,319.3 |
| Perpetual-Discount | 4.83 % | 4.87 % | 94,789 | 15.61 | 4 | 0.4677 % | 2,631.8 |
| FixedReset | 4.94 % | 3.04 % | 224,725 | 4.46 | 77 | -0.0628 % | 2,447.4 |
| Deemed-Retractible | 4.91 % | 3.33 % | 121,447 | 0.55 | 46 | 0.0457 % | 2,409.2 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| MFC.PR.G | FixedReset | -1.54 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.01 Bid-YTW : 4.27 % |
| RY.PR.I | FixedReset | 1.03 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.46 Bid-YTW : 3.24 % |
| GWO.PR.I | Deemed-Retractible | 1.40 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.65 Bid-YTW : 4.67 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| ENB.PR.T | FixedReset | 968,467 | New issue settled today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-12-05 Maturity Price : 23.09 Evaluated at bid price : 25.00 Bid-YTW : 3.71 % |
| MFC.PR.J | FixedReset | 122,437 | Recent new issue. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.05 Bid-YTW : 3.94 % |
| ENB.PR.B | FixedReset | 109,581 | Scotia crossed 97,000 at 25.23. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-12-05 Maturity Price : 23.28 Evaluated at bid price : 25.24 Bid-YTW : 3.57 % |
| BAM.PF.C | Perpetual-Discount | 60,150 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-12-05 Maturity Price : 24.33 Evaluated at bid price : 24.71 Bid-YTW : 4.92 % |
| NA.PR.Q | FixedReset | 43,035 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-11-15 Maturity Price : 25.00 Evaluated at bid price : 25.84 Bid-YTW : 3.14 % |
| RY.PR.C | Deemed-Retractible | 38,563 | National crossed 30,000 at 25.82. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-11-24 Maturity Price : 25.50 Evaluated at bid price : 25.79 Bid-YTW : 3.48 % |
| There were 37 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BAM.PR.G | FixedFloater | Quote: 23.00 – 24.80 Spot Rate : 1.8000 Average : 1.0549 YTW SCENARIO |
| TCA.PR.X | Perpetual-Premium | Quote: 51.98 – 52.95 Spot Rate : 0.9700 Average : 0.5911 YTW SCENARIO |
| GWO.PR.L | Deemed-Retractible | Quote: 26.35 – 26.94 Spot Rate : 0.5900 Average : 0.3326 YTW SCENARIO |
| FTS.PR.E | OpRet | Quote: 27.18 – 27.79 Spot Rate : 0.6100 Average : 0.3797 YTW SCENARIO |
| MFC.PR.G | FixedReset | Quote: 25.01 – 25.76 Spot Rate : 0.7500 Average : 0.5311 YTW SCENARIO |
| VNR.PR.A | FixedReset | Quote: 26.12 – 26.50 Spot Rate : 0.3800 Average : 0.2391 YTW SCENARIO |
[…] PerpetualDiscounts now yield 4.87%, equivalent to 6.33% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.25%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 210bp, a slight (and perhaps spurious) decline from the 215bp reported December 5. […]