Public Information – Released June 23, 2022

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Prime MMFs’ Asset Composition and Asset Sales

Viktoria Baklanova, Isaac Kuznits, Trevor Tatum 1

This study analyzes portfolio holdings data filed by prime money market funds (MMFs) on Form NMFP to gain insights about these funds’ portfolio composition in March 2020 through the present. The

analysis also includes data filed on Form N-CR, which is used for current reporting of MMFs’ material

events such as sales of securities to affiliated firms, and data about the Money Market Mutual Fund

Liquidity Facility (MMLF). The analysis shows that since March 2020 prime MMFs increased their

holdings of government securities and repurchase agreements (repos) overall. Allocations to credit-related

securities issued by banks and other types of firms may differ substantially among prime MMF categories.

Prime MMF investments

Prime MMFs invest in a broad range of short-term, high quality fixed-income instruments. Since 2010,

the SEC has required all MMFs to report their portfolio holdings on a monthly basis and classify each

holding in one of the 18 asset categories (see Appendix A for a full list of asset categories). 2 Historical

filings show that prime MMFs typically hold a mix of securities across all 18 categories. As of February

2022, prime MMFs held most of their assets in repos (22% of the total), followed by investments in financial

CP (19% of the total) and U.S. government securities (17% of the total) (Figure 1). 3

Figure 1: In recent years, prime MMFs have invested a larger share of assets in government securities and repos

$ trillion

1.2

0.8

0.4

0.0

Oct

2016

Jan

2017

Apr

2017

Jul

2017

Oct

2017

Jan

2018

Apr

2018

Jul

2018

Oct

2018

Jan

2019

Apr

2019

Jul

2019

Oct

2019

Jan

2020

Apr

2020

Jul

2020

Oct

2020

Jan

2021

U.S. government

Repo

Financial CP

ABCP

Nonfinancial CP

Investment company

Non-U.S. sovereign/supranational

Other ABS

Other instrument

Other muni

TOB

VRDN

Note: "Repo" shows the total of MMF investments in Treasury repos, government agency repos, and other repos.

Source: Form N-MFP

This is an article by the staff of the Division of Investment Management’s Analytics Office of the U.S. Securities

and Exchange Commission (SEC). The SEC, as a matter of policy, disclaims responsibility for any private publication

or statement of any of its employees. The views expressed herein are those of the authors and do not necessarily reflect

the views of the SEC or other members of the SEC staff.

If you have any questions or comments about this report, please contact Viktoria Baklanova

(baklanovav@sec.gov), Isaac Kuznits (kuznitsi@sec.gov), or Trevor Tatum (tatumt@sec.gov) in the Division of

Investment Management’s Analytics Office. Daniel Hiltgen of the SEC Division of Economics and Risk Analysis

provided helpful comments.

See Form N-MFP, Item C.6.

Repo – repurchase agreement, CD – bank certificates of deposit, TD – bank time deposit, CP – commercial

paper, ABCP – asset-backed commercial paper, ABS – asset-backed securities, FA – insurance company funding

agreement, muni – municipal securities, TOB – tender option bond, and VRDN – variable rate demand note.

Public Information – Released June 23, 2022

Average portfolio compositions Figure 2: In February 2022, prime retail MMFs invested 74% of their

CD/TD, financial CP, and ABCP

change over time in response to market assets in banks'

U.S.

government Other

events and other factors. For example,

at the end of 2016, following

Repo

16%

Nonfinancial CP

implementation of the 2014 MMF

reforms, prime MMFs held close to

Financial CP

27%

30% of their total assets in CD and

15% of their total assets in U.S.

39%

government securities. The share of

government securities in prime MMFs

increased markedly at the onset of the CD/TD

ABCP

39%

COVID-19 pandemic in early 2020,

reaching an all-time high of 38% of Source: Form N-MFP

these funds’ portfolios in August

2020. 4 On the other hand, the share of Figure 3: In February 2022, prime institutional MMFs offered to the

CD declined to 15% in August 2020 public invested over 70% of their assets in banks' CD/TD, financial CP,

and ABCP

U.S.

and was at 14% in February 2022.

government

Other

Repo

Nonfinancial

Filing data show that the portfolio

13%

composition of prime MMFs also

depends on the type of shareholders of

Financial CP

the fund. As of February 2022, prime

21%

retail MMFs – those funds limiting

31%

their investors to natural persons –

invested the majority of their total

ABCP

CD/TD

assets (74%) in securities issued by

44%

banks and other financial firms,

including CD/TD, financial CP, and Source: Form N-MFP

ABCP (Figure 2). Prime institutional

MMFs offered to the public – which

are typically used by large institutions Figure 4: In February 2022, prime institutional nonpublic MMFs invested

close to 70% of their assets in U.S. government securities and repos

– allocated over 70% of their total

U.S. government

assets to securities of banks and other

37%

Other

financial firms (Figure 3). However,

Nonfinancial CP

prime institutional MMFs that are not

offered to the public and are managed

Financial CP

14%

to benefit affiliated funds and accounts

22%

invested close to 70% of their assets in

U.S. government securites and repos, a

ABCP

much larger share than that of other

Repo

CD/TD

32%

types of prime MMFs (Figure 4 ).

Source: Form N-MFP

See Baklanova, Kuznits, and Tatum “How Do Prime MMFs Manage Their Liquidity Buffers?” SEC Staff

Analysis (July 2021).

Public Information – Released June 23, 2022

Most assets are held to maturity

MMFs invest in securities that mature within 397 days and are required to maintain a dollar-weighted

average portfolio maturity (WAM) that does not exceed 60 calendar days and a dollar-weighted average

portfolio life (WAL) that does not exceed 120 calendar days. 5 In practice, MMFs often maintain WAM and

WAL well below the regulatory limits. For example, as of February 2022, prime retail MMFs had average

WAM of 27 days and average WAL of 46 days, while prime institutional MMFs had average WAM of 23

days and average WAL of 45 days. Given the short-term nature of MMF portfolios, most assets are held to

maturity and the proceeds from maturing securities are normally reinvested in similar securities in the

absence of redemption requests.

Prime MMF assets sales in March 2020

Estimates based on Form N-MFP suggest that in March 2020 prime MMFs liquidated a higher than

average proportion of assets. This is consistent with the reports of prime MMFs raising liquidity to meet

incoming redemptions and to maintain weekly liquid assets above the regulatory threshold of 30% of total

assets. 6 The recent SEC Money Market Fund Reforms proposing release explains that in March 2020,

publicly offered prime institutional MMFs disposed of 15% of their total investments prior to maturity,

significantly higher than a 4% monthly average during the period from October 2016 through February

2020. 7

However, estimates of asset liquidations are sensitive to assumptions and may result in a range of

results. The current Form N-MFP provides month-end snapshots of portfolio holdings by MMFs, which

does not provide visibility into purchases and sales of securities during the month and potentially underestimates asset sales. To facilitate monitoring of prime money market funds’ liquidity management and

secondary market activities, the SEC recently proposed to require prime MMFs to report information about

the amount of portfolio securities sold or disposed of during the month, among other changes to MMF

regulation. 8

Analysis of changes in prime MMF portfolio holdings in March 2020 suggests that CP and banks’ CD

were the largest asset classes not held to maturity. The SEC Money Market Fund Reforms proposing release

provides the estimate that, based on Form N-MFP filings, around $24 billion in CD and around $28 billion

in CP were not held to maturity. In addition to potential sales in the secondary market, the reduction in CD

and CP holdings includes sales of these assets to affiliated banks and sales under the terms of the Money

Market Mutual Fund Liquidity Facility (MMLF). The Federal Reserve established the MMLF on March

18, 2020 to provide loans on advantageous terms to financial institutions purchasing securities from money

See rule 2a-7(d)(1). Adjustable rate government securities may have longer final maturity dates under certain

conditions. See rule 2a-7(i)(1).

See Baklanova, Kuznits, and Tatum “Prime MMFs at the Onset of the Pandemic” SEC Staff Analysis (April

2021).

See Money Market Fund Reforms, Rel. No. IC-34441 (December 15, 2021). These estimates include the assets

sold to affiliated banks and pledged to the Money Market Mutual Fund Liquidity Facility.

Id.

Public Information – Released June 23, 2022

market funds. 9 MMLF operations started on March 23, Figure 5: Prime institutional MMFs offered to the

2020, with the last transaction occurring on April 23, public are the largest MMF type selling assets under

MMLF terms

2020. 10

Filings on Form N-CR by three prime MMFs in

March 2020 showed that these funds sold

approximately $4 billion of securities to affiliated

banks, including around $1.2 billion of CP and around

$2.8 billion of CD. 11 In addition, in March 2020, 47

prime MMFs sold around $33 billion of CP and $16

billion of CD to financial institutions under the terms

of the MMLF.12 These sales accounted for close to 85%

of the $58 billion in total MMLF loans extended during

its time in operations.

$ billion

CD CP ABCP Municipal (left)

% of participating funds'net assets (right)

15%

10%

Prime inst

nonpublic

Prime inst

public

Prime retail TE inst

TE retail

The Federal Reserve’s recent disclosures Note: TE - tax-exempt MMFs. Net assets as of February 29, 2020.

Source: Form N-MFP, Federal Reserve

concerning the MMLF and other lending facilities

established in response to the COVID-19 pandemic shows that all categories of eligible MMFs sold assets

under the terms of the facility. 13 Prime institutional MMF offered to the public accounted for the largest

share of these sales (73%), prime retail MMFs accounted for 24%, and prime institutional nonpublic MMFs

accounted for only 1% of the sales (Figure 5).

Figure 6: Estimated asset liquidation by prime MMFs

in March 2020 based on Form N-MFP data is close in

size to the amount of reported sales to affiliated banks

and reported MMLF

$ billion

CD CP (incl. ABCP)

Estimated MMF sales

N-CR sales

MMLF

Source: Form N-MFP, Form N-CR, Federal Reserve

For additional perspective, in February 2020, prime

retail MMFs had the largest share of net assets ($473

billion), followed by public prime institutional MMFs

($386 billion), and by prime institutional nonpublic

MMFs (close to $250 billion). Assets pledged to the

MMLF accounted for a larger share of participating

prime institutional public MMFs net assets (12%),

followed by prime retail MMFs (7%). Tax-exempt retail

and institutional MMFs only accounted for a very small

part of MMLF pledges, 2% and 0.3%, respectively.

It appears that estimates of prime MMF asset

liquidation in March 2020 using February 2020 and

March 2020 Form N-MFP filings are close in size to the

total sales to affiliated banks reported on Form N-CR

and the reported amount of MMLF loans (Figure 6).

Information about the MMLF is available on the Federal Reserve’s website at

https://www.federalreserve.gov/monetarypolicy/mmlf.htm. MMLF ceased extending credit on March 31, 2021.

See Anadu, Cipriani, Craver, and La Spada “The Money Market Mutual Fund Liquidity Facility” (September

2021).

See Form N-CR filings in the SEC EDGAR system.

See supra footnote 10. This is slightly lower than the amount the Commission previously estimated was pledged

to the MMLF in March 2020 ($53 billion). See supra footnote 7, at n.57 and accompanying text. Since the time of

that earlier estimate, additional data about the MMLF has become available.

See Federal Reserve, Disclosures Regarding the Emergency Lending Response to COVID-19, Pursuant to

Section 11(s) of the Federal Reserve Act (March 31, 2022).

Public Information – Released June 23, 2022

However, a survey of prime MMFs conducted by an industry group provides a higher estimate of asset

sales by prime MMFs in March 2020 as it includes daily data about CP and CD sales prior the MMLF

operations. 14 The survey showed that sales of these assets during the period from March 2 through March

18 amounted to $23 billion. These sales together with the amount of reported sales to affiliated banks and

reported MMLF loans exceed the estimates derived solely from Form N-MFP underscoring the need for

better, more granular data about assets sales by prime MMFs.

See Comment Letter of the Investment Company Institute (April 12, 2021). The survey provides a detailed

breakdown of daily CP and CD sales and purchases by prime institutional MMFs and prime retail MMFs from March

2, 2020 thought March 18, 2020.

Public Information – Released June 23, 2022

Appendix A

1. U.S. Treasury Debt;

2. U.S. Government Agency Debt;

3. Non-U.S. Sovereign, SubSovereign and Supra-National debt;

4. Certificate of Deposit;

5. Non-Negotiable Time Deposit;

6. Variable Rate Demand Note;

7. Other Municipal Security;

8. Asset Backed Commercial Paper;

9. Other Asset Backed Securities;

10. U.S. Treasury Repurchase Agreement if collateralized

only by U.S. Treasuries (including Strips) and cash;

11. U.S. Government Agency Repurchase Agreement

collateralized only by U.S. Government Agency

securities, U.S. Treasuries, and cash;

12. Other Repurchase Agreement if collateral falls outside

Treasury, Government Agency, and cash;

13. Insurance Company Funding Agreement;

14. Investment Company;

15. Financial Company Commercial Paper;

16. Non-Financial Company Commercial Paper;

17. Tender Option Bond; or

18. Other Instrument.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.