Market Turmoil and Liquidity Crunch Rooted in the COVID-19 Pandemic

By Sean Collins

October 14, 2020

The spring of 2020 will be remembered for the outbreak of the global COVID-19 pandemic. Within a few short weeks, the world’s leading economies shut down all but the most essential activities—measures that created unprecedented uncertainty in the global capital markets. The result was a period of historic market volatility and precipitous drops in domestic and global markets.

Policymakers in the United States and around the world already are considering whether and how to bolster the financial sector’s resilience to future shocks. To ensure these discussions are rooted in facts and an evidence-based analysis, ICI is releasing a new research series, Report of the COVID-19 Market Impact Working Group. The series will chronicle financial markets’ reactions to the pandemic, and successive installments will describe the experiences of regulated funds—and their investors—including exchange-traded funds (ETFs), money market funds, and bond funds in the United States, and Undertakings for Collective Investment in Transferable Securities (UCITS) and ETFs in the European Union.

The first paper in the series, “The Impact of COVID-19 on Economies and Financial Markets,” focuses on the relationship between the pandemic, the economic shutdown it triggered, and the volatility that gripped the markets.

The paper’s key insight: the COVID-19 crisis is different from the 2007–2009 global financial crisis. The spring 2020 market dislocations represented a liquidity crisis driven by the economic response to a global health crisis—as compared to the collapse of a housing market bubble that created a credit crisis that roiled markets in 2007–2009. This is important because policies designed to address issues arising during the global financial crisis are not necessarily appropriate for the current crisis.

Holistic Understanding of Markets’ Reaction Is Crucial to Understanding Funds’ Experiences

The financial turmoil that gripped the markets in March originated from market participants’ sudden and immediate need for liquidity to protect against the uncertainty caused by the virus and economic shutdown. Though Treasuries are usually a safe haven for market participants during times of market stress, data indicate that investors were selling Treasury bonds in early March, signaling that the Treasury market was becoming dislocated. Numerous factors appear to have contributed to this aberrant behavior, ranging from market participants rebalancing positions to account for changing market conditions to regulatory capital standards for banks.

Strains in the Treasury markets eventually spilled over into short- and long-term credit markets, including the markets for municipal debt securities, commercial paper, bank certificates of deposit, and corporate bonds. In light of uncertainty about the virus and the economy, investors became extremely risk averse and sought to preserve or bolster their cash positions. As a result, sellers of short- and long-term credit securities far outstripped the number of buyers. These market dynamics affected all market participants, including money market and bond mutual funds.

Federal Reserve’s Actions Were Swift and Necessary

By mid-March, liquidity in, and the flow of credit through, short- and long-term credit markets had evaporated, risking damage to households, businesses, governments, and financial institutions. With the demand for liquidity overwhelming the supply from the private sector, there was little choice but for central banks to fulfill their role as lenders of last resort. The combination of the Federal Reserve’s wide-ranging actions—which were appropriate, timely, flexible, and necessary—helped restore liquidity and the flow of credit.

Regulated Funds Proved Largely Resilient to COVID-19 Market Turmoil

Future papers in the series will examine regulated funds’ experiences in light of the financial market turmoil. They will show that ETFs performed well and helped markets by providing much-needed price discovery. Bond funds faced challenges, but defied predictions that they would destabilize the markets. And while prime money market funds saw significant outflows, reforms after the global financial crisis reduced the impact of those flows on the market at large. These and other detailed findings—backed by data—should inform ongoing and future discussions with regulators and other market observers who may be looking for lessons learned from this tumultuous period.

Sean Collins is chief economist at ICI.

Permalink: https://www.ici.org/viewpoints/20_view_covidrpt1

TOPICS: Bonds COVID-19 Corporate Bonds Financial Markets Financial Stability Mutual Fund

2020 Investment Company Fact Book: Letter from the Chief Economist

By Sean Collins

May 19, 2020

A version of this letter by ICI Chief Economist Sean Collins was released in the Institute’s 60th edition of the Investment Company Fact Book.

2020 Investment Company Fact Book: Letter from the President and CEO

By Paul Schott Stevens

May 13, 2020

This ICI Viewpoints is a version of a letter from ICI President and CEO Paul Schott Stevens that was released in the 60th edition of the Investment Company Fact Book.

Regulated Funds: Supporting the Economy During the COVID-19 Crisis

By Paul Schott Stevens

April 22, 2020

In a recent call with the Financial Stability Board, ICI President and CEO Paul Schott Stevens shared some findings and observations about the response of fund investors to recent developments in financial markets, and the picture that has emerged to date is reassuring. The extraordinary actions taken by the Federal Reserve, Treasury, the Securities and Exchange Commission, and Congress helped relieve pressure and ensure orderly functioning of US financial markets.

Working to Ensure Funds Can Maintain Vital Services

By Paul Schott Stevens

March 22, 2020

Key personnel of mutual fund sponsors and service providers should be deemed “essential workers” and thus should be permitted to report to work to maintain security and services for fund investors. Two key developments over the weekend offered some hope that state governors will hear this message and provide the needed relief from their shelter-in-place orders.

During COVID-19 Crisis, Fund Company Staff Are Essential

By Paul Schott Stevens

March 20, 2020

As governments consider extending orders to “shelter in place,” they must include staff of fund companies among the “essential” workers who qualify for an exemption. Fund company staff are very much part of the country’s critical infrastructure, and they must be able to offer their full support to shareholders during these uncertain times.

ETFs Are Passing the COVID-19 Crisis Test

By Shelly Antoniewicz

March 17, 2020

How have exchange-traded funds (ETFs) weathered the intensifying financial market fallout from the COVID-19 pandemic? So far, it looks like ETFs are healthy and robust.

2019 Annual Report to Members: ICI's International Work

By Miriam Bridges

November 21, 2019

With the industry's interests bound ever more tightly to global trends, ICI pursues an active international agenda through its international arm, ICI Global. ICI’s international work in 2019 was a period of vigorous effort on a host of issues....

2019 Annual Report to Members: A Letter to ICI's Membership

By George C. W. Gatch and Paul Schott Stevens

November 14, 2019

What follows is an abridged version of a letter by ICI Chairman George C. W. Gatch and ICI President and CEO Paul Schott Stevens that was released in ICI’s 2019 annual report. To read their full letter, please see ICI’s 2019 Annual Report to Members....

Four Wrongs Don’t Make a Right—A Financial Stability Proposal Falls Short

By Susan Olson

September 16, 2019

After the global financial crisis, the Dodd-Frank Act of 2010 set up a regulatory framework to identify and mitigate threats to financial stability. Since then, regulators and industry have taken many actions to make financial markets and market participants more resilient. Yet a new proposal calling for further reform fails to take this progress into account, instead offering an action plan that’s likely to create—not solve—problems in promoting financial stability.

2019 Investment Company Fact Book: Letter from the Chief Economist

By Sean Collins

May 7, 2019

Globalization has hit a few speed bumps in recent years, but it hasn't slowed the globalization of the Investment Company Fact Book. Consistent with ICI’s mission to represent the interests of regulated funds and their investors worldwide, Fact Book is expanding its international presence....

SEC Chairman Jay Clayton Tackles Hot Topics at GMM

By Garrett Hawkins

May 2, 2019

In introducing SEC Chairman Jay Clayton ahead of his highly anticipated appearance at ICI’s 61st annual General Membership Meeting this morning, ICI President and CEO Paul Schott Stevens praised the chairman’s “erudition, dedication, and acumen” in leading the Commission. And during their 40-minute conversation—which tackled some of the top issues facing funds and their investors—each of those qualities was on show.

ICI’s 2018 Annual Report: Letter from the President

By Paul Schott Stevens

December 3, 2018

A version of this letter by ICI President and CEO Paul Schott Stevens was released in the Institute’s 2018 Annual Report.

Fund industry watchers will remember this year as one of important policy developments, including some that have been the subject of years of debate. The Investment Company Institute has been deeply engaged in this wide range of issues, working on both legislative and regulatory fronts to promote advantageous outcomes for regulated funds and their shareholders....

Common Ownership: "Puffery" in the Legal Analysis

By Mike McNamee

December 3, 2018

Proponents of the common ownership hypothesis presume that the economic debate over the competitive effects of institutional investing is settled. But a new paper from Douglas H. Ginsburg, judge on the US Circuit Court of Appeals for the District of Columbia Circuit, and Keith Klovers, a judicial clerk on that court, finds that those proponents "substantially overstate the validity and strength of the existing empirical work" on common ownership....

Common Ownership: Ignoring the Age-Old Conflict Between Owners and Managers

By Mike McNamee

November 30, 2018

In his first public remarks as a member of the Federal Trade Commission, Commissioner Noah Joshua Phillips tackled what he called “the common ownership story”—and concluded that “this ‘economic blockbuster’ seems a little light on plot.” And like many other experts, Commissioner Phillips sees problems with both the empirical evidence and the theoretical basis for the claim of anticompetitive harm....

Common Ownership: Faulty Assumptions on Investors’ ‘Economic Interests’

By Mike McNamee

November 29, 2018

In a new paper, scholars Thomas A. Lambert and Michael E. Sykuta find that proponents of the common ownership hypothesis don’t understand—or even attempt to consider—the actual economic interests and incentives of asset managers and their fund clients....

2018 Investment Company Fact Book: Letter from the Chief Economist

By Sean Collins

May 15, 2018

Those of us who wear glasses know that one of the most crucial elements in seeing the world is the right lens. A bad lens warps the light and distorts the signals; the right lens sharpens the image and enhances our understanding.

This is a useful metaphor for the work that ICI Research does in providing informed analysis to guide public policy. Through our voluminous collections and surveys, we gather large amounts of data—signals about the behavior of funds, markets, and investors. But finding the patterns in these signals requires the right lens—accumulated knowledge provided by context, economic insights, and understanding of institutions.

The Investment Company Fact Book is one very visible result of this process and its many elements...

Fund Investors Will “Run”? Sorry, Charlie Brown

By Sean Collins and Sarah Holden

March 7, 2018

For decades, Charles Schulz kept us in suspense: surely this time, Lucy would let Charlie Brown kick the football. Nope. Every time, at the last second, she pulled the ball away—and Charlie Brown fell flat on his back.

We’ve seen the same gap between wish and fulfillment around market turmoil and mutual funds. For decades, commentators have predicted that investors in stock and bond funds, faced with market turmoil, would redeem en masse, perhaps adding to the market turmoil. Despite plenty of opportunities, that just hasn’t happened.

Stock market turmoil in February provides yet another example of this...

Pointing Fingers at Index Funds Won’t Explain Market Volatility

By Shelly Antoniewicz

February 14, 2018

With all the recent volatility in the US stock market, two questions are frequently being asked:

Are fund investors fleeing the stock market?
Are index funds causing market turbulence?

The short answer to both questions is no.

Experience and research show that investor flows to and from mutual funds and exchange-traded funds (ETFs) tend to track market returns. ...

Americans Rely on Stocks to Meet Their Financial Goals as Much as Ever

By Sean Collins

January 17, 2018

The following ICI Viewpoints is a letter to the Wall Street Journal by Sean Collins, ICI chief economist, in response to an article published on January 4, 2018:

Are America’s individual investors missing out on one of the biggest bull markets in history? No. The Wall Street Journal’s account (“As Dow Tops 25000, Individual Investors Sit It Out,” January 4) is based on anecdotes and selective use of data.

2017 Annual Report to Members: A Message from the Chairman

By William F. “Ted” Truscott

November 13, 2017

This letter by ICI Chairman Ted Truscott was released in our 2017 Annual Report to Members.

Every day, I’m reminded that each of us in the fund industry is driven to deliver ever-greater value for our fees and keep improving service to fund shareholders. Investors are demanding more from every asset manager—and the resulting competition drives us to innovate, find new efficiencies, and offer even better solutions for investors’ needs.

Let’s Make Disclosure Reform Serve Shareholders

By Dorothy Donohue

October 25, 2017

The October 12 meeting of the Investor Advisory Committee (IAC)—a group established by the Dodd-Frank Act to advise the Securities and Exchange Commission (SEC) on regulatory priorities and other issues—has breathed new life into a long-running debate over how US-registered funds can best provide essential information to their shareholders.

Applying Evidence to Theories on Regulated Funds

By Sean Collins

October 12, 2017

Late last month, the Financial Stability Oversight Council (FSOC) voted to rescind its designation of American International Group (AIG). After requiring a bailout during the financial crisis, the insurer was designated as a non-bank “systemically important financial institution,” or SIFI, in 2013. When FSOC conducted its most recent annual review, it decided AIG no longer warranted “systemic” status.

Simulating a Crisis

By Sean Collins

August 15, 2017

The Bank of England (BoE) recently published a paper detailing results from a simulation intended to “stress-test” open-end investment funds. The paper suggests that under “severe but plausible” assumptions, investors could redeem so heavily from open-end investment funds (e.g., mutual funds or UCITS funds) during a period of market stress that they could cause “dislocations” in corporate bond markets.

New ICI Paper Helps Readers Understand ETF Listing Processes and Standards

By Jane Heinrichs and Kenneth Fang

August 10, 2017

Exchange-traded funds (ETFs) have been a part of US markets for more than 20 years, and they remain some of the most highly regulated financial products, subject to multiple and sometimes overlapping statutory schemes.

Top Investment Strategists Sound Optimistic Notes amid Headwinds

By Rob Elson

May 25, 2017

Opportunities abound in today’s market and macroeconomic environment, and it’s up to fund managers to help their investors capitalize on them. That’s the outlook from a panel of world-class investment strategists sharing their insights at ICI’s 59th annual General Membership Meeting, held earlier this month in Washington, DC.

Stevens Calls for Measures to Enhance Economic Growth

By Rachel McTague

May 5, 2017

With America striving to achieve greater economic growth, Paul Schott Stevens, ICI president and CEO, called on the Securities and Exchange Commission (SEC) to enhance funds’ essential role in the capital markets by proposing new rules to govern funds’ use of derivatives and by creating a harmonized best-interest standard for advisers providing investment advice to retail and retirement investors. The ICI chief also urged the SEC to adopt a fund disclosure regime for the 21st century.

2017 Investment Company Fact Book: Letter from the Chief Economist

By Brian Reid

April 27, 2017

Have you ever tried to put a jigsaw puzzle together without knowing what the finished work should look like? It’s difficult—even with help from family and friends. Are those blue pieces part of a peaceful lake or a cloudless sky? Are those dark pieces a forest floor or storm clouds brewing on the horizon? Without the completed picture on the puzzle box as a guide, everyone has their own idea of what the completed work will look like and how to put it together.

What's the “Exposure” of Money Market Funds to Europe?

By Sean Collins

January 26, 2017

At the American Economic Association (AEA) meetings in Chicago early this month, speakers and attendees at several sessions asked: do money market funds pose systemic risks?

A Proposal that Should Be Popped

By Paul Schott Stevens

December 15, 2016

The following ICI Viewpoints is a letter to the editor by Paul Schott Stevens, president and CEO of the Investment Company Institute, in response to an op-ed published on December 7, 2016, in the New York Times, “A Monopoly Donald Trump Can Pop.”

Millions of Americans could lose the low costs and broad diversification of fund investing under the dangerous proposal outlined in the op-ed by Posner, Weyl, and Morton.

The Taper Tantrum—Take II

By Shelly Antoniewicz

December 13, 2016

Long-term interest rates in the United States have been on the rise since summer 2016—slowly creeping up from July through October, and then jumping after the presidential election. Thus far, the response from bond mutual fund investors has been subdued. Nevertheless, various commentators—from the vice chairman of the Federal Reserve Board to the multinational Financial Stability Board—have expressed concerns that bond fund investors may rush to redeem shares to avoid portfolio losses stemming from unexpected increases in interest rates.

Investor Protection Priorities for the New Year

By David Blass

December 12, 2016

The following ICI Viewpoints is adapted from a presentation that ICI General Counsel David Blass gave to the Investor Advisory Committee of the US Securities and Exchange Commission on December 8, 2016. Visit this page to read the entire presentation.

If I were to poll ICI members about next year’s priorities, I am sure we would receive consistent feedback: give us an opportunity to implement all the rules that have been imposed on us. New rules from the Securities and Exchange Commission (SEC) covering data reporting, swing pricing, and liquidity risk management will require huge expenditures and years of work to implement fully. And they were adopted in the aftermath of two rounds of money market fund reform, as well as many other rules applicable to the fund industry adopted by other regulatory agencies.

Money Market Fund Reforms Combine with Bank Regulations to Boost Interest Rates

By Sean Collins

September 28, 2016

As detailed in the previous ICI Viewpoints in this series, the Securities and Exchange Commission’s (SEC) new rules for money market funds induced a drop in the assets of prime and tax-exempt money market funds of $910 billion since January 2015 and a roughly comparable $872 billion rise in the assets of government money market funds.

As Money Market Fund Investors Adjust, Funds Have Managed Flows

By Sean Collins

September 27, 2016

The Securities and Exchange Commission’s new rules for money market funds, which must be fully implemented by October 14, largely center around two key reforms.

For Money Market Funds, Massive Preparation Has Paid Off in Smooth Transition

By Marty Burns

September 26, 2016

First in a series on money market funds.

By October 14, the money market fund industry must fully implement the 2014 money market fund reforms passed by the Securities and Exchange Commission (SEC), cementing major changes for investors and fund complexes. ICI has been in close constant contact with members since the rules were enacted in 2014 and has been working with operations and other professionals throughout the industry to ensure an orderly transition—including fully informing investors—to the new regime in October.

US T+2 Is Coming—and Bringing Many Benefits with It

By Ahmed Elghazaly

September 6, 2016

On September 5, 2017, equities, municipal and corporate bonds, and unit investment trusts will reduce the amount of time it takes to settle trades from trade date plus three days (T+3) to trade date plus two days (T+2).

Revised Fed Data Show Mutual Funds’ Share of Corporate Bond Market Is Small and Stable

By Shelly Antoniewicz

August 26, 2016

Discussions among regulators and the financial press about the role of bond mutual funds in financial stability risks have been fueled by concerns about the size and apparent growth in bond funds’ participation in corporate bond markets. But what if that role and its growth have been largely overstated?

Matching Models to Reality: Bond Market Investors Don’t Follow the “First-Mover” Script

By Brian Reid

July 18, 2016

Fourth in a series of ICI Viewpoints testing the hypotheses of academics and regulators about mutual fund and investor behavior during times of market stress.

Regulators and researchers have put forward a common narrative that fund investors can destabilize markets during a period of market stress. They have advanced several hypotheses—including the concept of a first-mover advantage—to support their narrative. These hypotheses produce testable predictions about how fund investors behave in troubled markets: not only will investors redeem their fund shares but they also will stop purchasing new fund shares, thus creating large destabilizing net outflows from funds.

Matching Models to Reality: In a Falling Market, the Real “Movers” May Be...the Buyers

By Brian Reid

July 15, 2016

Third in a series of ICI Viewpoints testing the hypotheses of academics and regulators about mutual fund and investor behavior during times of market stress.

Matching Models to Reality: Doomsayers Are Disappointed—Again—as Funds Weather Brexit Shock

By Paul Schott Stevens

July 13, 2016

On Thursday, June 23, the electorate of the United Kingdom voted in a referendum on the country’s membership in the European Union. The result—51.9 percent in favor of “Brexit,” 48.1 percent in favor of “Remain”—went against pollsters’ and pundits’ expectations and surprised the world.

The Liquidity Provided by ETFs Is No Mirage

By Todd Bernhardt

June 20, 2016

The article above ignores fundamental information about ETFs, the behavior of investors, and the effects of market structure on the ETF product.

When Investor Protection Becomes Protectionism

By Patrice Bergé-Vincent

June 14, 2016

Today, Europe is facing two related needs: to provide its citizens with efficient, lower-cost vehicles for savings and investment, and to bolster economic growth.

A Changing Landscape for the Fund Industry—and Fund Investors

By Rob Elson

May 27, 2016

Continue to expect change in the investment landscape, with the Federal Reserve, the Millennial generation, and technological evolution all playing major roles.

The SEC’s Historic Success: Six Key Ingredients

By Paul Schott Stevens

May 20, 2016

This ICI Viewpoints is adapted from ICI President and CEO Paul Schott Stevens’s introduction for SEC Chair Mary Jo White at the 2016 ICI General Membership Meeting on May 20.

More than 80 years have passed since Congress—looking to restore public confidence in markets at the height of the Great Depression—established the U.S. Securities and Exchange Commission (SEC) to administer the federal securities laws enacted as part of President Franklin D. Roosevelt’s New Deal.

SEC Chair White Expects Continued ‘Bright Spotlight’ on Asset Management

By Rachel McTague

May 20, 2016

The U.S. Securities and Exchange Commission (SEC) is contemplating several new initiatives governing registered funds, in addition to adopting rules this year on reporting modernization, liquidity management, and the use of derivatives, SEC Chair Mary Jo White announced at the opening session on the final day of ICI’s annual General Membership Meeting (GMM).

GMM Policy Forum: Michael Bloomberg and the Focus on Value

By Todd Bernhardt

May 18, 2016

Businesses and people can both prosper if they focus on providing a service that is unique and that has real value, said Michael R. Bloomberg at ICI’s 58th Annual General Membership Meeting (GMM) today. The noted entrepreneur, philanthropist, and three-term mayor of New York City covered a wide range of topics in a lively back-and-forth with ICI President and CEO Paul Schott Stevens during the meeting’s opening Policy Forum, attended by about 1,500 fund industry leaders.

To the SEC and FINRA: It’s Your Move

By David W. Blass

April 21, 2016

Earlier this month, I wrote about the wide-ranging benefits of the proposed Securities and Exchange Commission (SEC) rule to give U.S. regulated funds the option of making online access to shareholder reports their default method for informing their shareholders.

The SEC’s Online-Delivery Gift to Fund Shareholders

By David W. Blass

April 4, 2016

A recent SEC rulemaking proposal presages good news for America’s 90 million mutual fund shareholders. Proposed Rule 30e-3 under the Investment Company Act of 1940, introduced last year as part of a larger initiative to enhance and modernize fund data reporting, would give funds the option of flipping their default mechanism for delivering shareholder reports from U.S. mail to online access.

The “Waterfall Theory” of Liquidity Management Doesn’t Hold Water

By Sean Collins and Chris Plantier

March 9, 2016

In a series of recent blog posts, economists at the Federal Reserve Bank of New York have discussed new research assessing the potential for bond mutual funds to pose systemic risks.

New Research by New York Fed Confirms: Bond Funds Don’t Pose Systemic Risks

By Chris Plantier and Sean Collins

February 23, 2016

In a series of recent blog posts, economists at the Federal Reserve Bank of New York discussed results from a theoretical model assessing the potential for bond mutual funds to pose systemic risks.

U.S. and European Fund Investors Continue to Take Long View on EM Economies

By Chris Plantier

February 12, 2016

In an ICI Global Research Perspective last year, we showed that U.S. and European registered funds held $1.7 trillion in emerging market (EM) stocks and bonds at the end of 2014 (this total counts Hong Kong, Singapore, South Korea, and Taiwan as emerging markets). Of that, $1.27 trillion was estimated to be in equities and $431 billion was in bonds. We also showed that this $1.7 trillion was spread widely, across 80 different EM countries, and that fund net purchases of EM securities explained little of the variability of capital flow to EM countries.

All Pain and No Gain for Fund Investors

By Paul Schott Stevens

February 5, 2016

The following is a letter submitted to the editor of the New York Times. A financial transaction tax (FTT) (editorial, The Need for a Tax on Financial Trading, Jan. 28) is a terrible idea that would harm all investors, especially American workers saving for retirement. We have yet to see an FTT proposal that would not hurt Main Street nor weaken our capital markets.

High-Yield Bond Mutual Fund Flows: An Update

By Sean Collins

December 23, 2015

In an ICI Viewpoints on December 16, we debuted new weekly data on flows to high-yield bond mutual funds, presenting data through December 9. In light of continuing developments in the high-yield market, we have had requests to provide an update this week, taking into account the flows through December 16. Here is our overview.

High-Yield Bond ETFs: A Source of Liquidity

By Shelly Antoniewicz

December 22, 2015

The high-yield bond market has been buffeted recently, as market participants reassessed the risks of this sector and sent prices for many such bonds tumbling.

High-Yield Bond Mutual Fund Flows: Some Perspective

By Sean Collins

December 16, 2015

Recent conditions in the high-yield credit markets have raised questions about the impact of market turmoil on mutual funds investing in that segment of the bond market.

The First Move: MSRB Issues a Proposal for Shortened Settlement Cycle

By Marty Burns

December 8, 2015

Recently, the Municipal Securities Rulemaking Board (MSRB) opened the door on the regulatory filings needed to move the U.S. securities markets to a shortened settlement cycle.

Traders, Start Your Engines: After August 24, Exchanges Need to Coordinate

By Jennifer Choi and George Gilbert

November 30, 2015

The extraordinary volatility in U.S. equity markets on August 24, 2015, exposed a significant deficiency in the rules governing these markets’ structure: a lack of harmonization across securities exchanges for reopening trading after a “limit up–limit down” trading halt in a security.

U.S. Bond ETFs Resilient on August 24

By Shelly Antoniewicz

November 20, 2015

Some observers have suggested that equity market volatility on August 24, 2015, spilled over into other markets and products, in particular to bond exchange-traded funds (see, for example, Bank of England Financial Stability Paper, no. 34, October 2015, pages 26 and 27). In our analysis of the events of that morning, we conclude that U.S. bond ETFs were resilient and largely immune to the turmoil in the equity markets.

The Wall Street Journal’s Dangerous Disservice to Investors

By Mike McNamee

September 22, 2015

For 75 years, mutual funds have successfully met their regulatory obligation to fulfill redemption requests within seven days, meeting investor demands and delivering on their investment objectives through good markets and bad.

Yet the Wall Street Journal seems determined to ignore this established history and the circumstances surrounding it. It has created a liquidity “measure” of its own devising—a test that no regulator has endorsed and no informed market participant would credit. The newspaper uses its self-invented process to imply that bond mutual funds are “pushing the limits” of Securities and Exchange Commission (SEC) guidelines governing fund liquidity.

New York Times Paints False Picture of Funds’ Emerging Market Investments

By Mike McNamee

August 24, 2015

With the global market turmoil over the past week, it’s no surprise that journalists are looking for hot stories of panic, investor flight, and impending crisis. Either they believe that investors are inherently flighty and panic-prone, or they believe that “this time is different” and investors who have not panicked before will panic now.

Ignore the IMF’s Uninformed Call for a Third Round of Reforms to U.S. Money Market Funds

By Jane Heinrichs and Chris Plantier

July 23, 2015

A year ago today, the U.S. Securities and Exchange Commission (SEC) voted to adopt sweeping reforms to its rule governing money market funds.

SEC Chair White Affirms Agency Has Tools to Address Risks in Industry

By Rachel McTague

May 8, 2015

The U.S. Securities and Exchange Commission (SEC) has the tools it needs to address systemic risks to the extent they exist in the asset management industry, said SEC Chair Mary Jo White at the opening session on the final day of ICI’s annual General Membership Meeting (GMM). White also announced that David Grim—who had been serving as acting director of the SEC’s Division of Investment Management—has just been named director of the division. White said she is thrilled that Grim, a 20-year veteran of the SEC in the investment management area, is taking the reins at a time when the Commission is moving forward to implement proactive regulations for the industry.

Opinion: The Tax Threat to Your Mutual Fund

By Mike McNamee

May 7, 2015

Vanguard Chairman and CEO Bill McNabb sent “an open letter to all mutual fund investors” in the opinion pages of Thursday’s Wall Street Journal. His message: fund investors face a clear threat of higher costs, weaker returns, and a bailout tax to salvage other failing financial institutions—all if regulators get their way in imposing new rules on funds or their managers.

2015 Investment Company Fact Book: Letter from the Chief Economist

By Brian Reid

May 4, 2015

A version of this letter by ICI Chief Economist Brian Reid was released today in our 55th edition of the Investment Company Fact Book.

This year marks the 75th anniversary of the Investment Company Act and the Investment Advisers Act—the key statutes under which mutual funds, exchange-traded funds (ETFs), closed-end funds, and unit investment trusts are regulated and governed. In 1940—the same year that Congress enacted these laws—the fund industry formed the National Committee of Investment Companies, the trade group that became the Investment Company Institute (ICI).

Federal Reserve Reverse Repo Facility Helps Stabilize Short-Term Money Markets

By Chris Plantier

April 17, 2015

Following a pattern observed at the end of recent quarters, money market fund holdings of European issuers dropped at the end of March, although the decline was not as large as the previous quarter, ending December 2014. As we have noted before, for regulatory reasons European banks have been paring their balance sheets at the end of each quarter, resulting in a temporary decline in their desire to borrow from money market funds.

More Unfounded Speculation on Bond ETFs and Financial Stability

By Shelly Antoniewicz and Mike McNamee

April 13, 2015

A recent column in the Financial Times warns of “another accident in waiting” in the growth of fixed-income exchange-traded funds (ETFs)—described as “financial alchemy” that converts illiquid bonds into “baskets” that “trade moment to moment on the stock exchanges.” This “illusory” ETF liquidity will disappear, the author warns, when investors “want to move en masse, and quickly, when the going gets less good.”

Designation’s Vast Reach into Investor Portfolios

By Paul Schott Stevens

March 24, 2015

On Wednesday, March 25, I’ll testify before the Senate Committee on Banking, Housing, and Urban Affairs about the Financial Stability Oversight Council’s process for designating nonbank firms as “systemically important financial institutions,” or SIFIs.

Once Again, Information Moves Markets

By Sean Collins

March 18, 2015

Treasury yields fell sharply today and the stock market jumped. Wouldn’t it be nice if mutual funds could take credit? Unfortunately, they can’t. Any orders that mutual fund investors place to buy or sell shares anytime today before 4:00 p.m. won’t hit the market until 4:00 p.m., just like any other day. And, if you are reading this blog post at the time of its posting, 4:00 p.m. is still 10 minutes away.

Does Liquidity in ETFs Depend Solely on Authorized Participants?

By Shelly Antoniewicz and Jane Heinrichs

March 16, 2015

ICI recently conducted a survey of its members that sponsor exchange-traded funds (ETFs) to collect information on authorized participants (APs)—typically market makers or large institutional investors with an ETF trading desk that have entered into a legal contract with an ETF to create and redeem shares of the fund.

Why Long-Term Fund Flows Aren’t a Systemic Risk: Multi-Sector Review Shows the Same Result

By Sean Collins

March 4, 2015

In a recent blog post discussing why we believe flows from long-term mutual funds do not pose risk to the financial system, we posted a chart showing that outflows from bond funds are modest even during periods of stress in the financial markets.

Simple Answers to the Federal Reserve’s Quandaries

By Mike McNamee

February 24, 2015

The Federal Reserve System can’t get past its perplexities on the role of mutual funds in financial stability. Time and again, the Fed’s governors, regional presidents, and staff return to the same hypothetical risks and speculative scenarios in which mutual funds somehow pose a threat to the financial system.

Why Long-Term Fund Flows Aren’t a Systemic Risk: Understanding the Data on Institutional and Retail Investors

By Sean Collins

February 20, 2015

In two previous ICI Viewpoints posts, I discussed the muted response of investors in long-term funds―which invest primarily in stocks, bonds, or both―to financial stresses, and examined some of the characteristics of funds and their investors that help explain that muted response.

Why Long-Term Fund Flows Aren’t a Systemic Risk: Plus Ça Change, Plus C’est La Même Chose

By Sean Collins

February 19, 2015

As discussed in a previous ICI Viewpoints post, regulators and others have voiced concerns that long-term funds―funds that invest primarily in stocks, bonds, or both―might experience large outflows during a financial crisis, adding pressure on financial markets.

Why Long-Term Fund Flows Aren’t a Systemic Risk: Past Is Prologue

By Sean Collins

February 18, 2015

A recent Brookings Institution conference on Asset Management, Financial Stability, and Economic Growth aired the “active policy debate on how to regulate asset managers to maximize economic growth without endangering financial stability.”

Plenty of Players Provide Liquidity for ETFs

By Shelly Antoniewicz

December 2, 2014

A recent article in the Financial Times’ FT Alphaville blog (“Lies, Damned Lies, and Liquidity Expectations”) focused on a paper published by the Committee on the Global Financial System, an organization that monitors developments in global financial markets for central bank governors.

Bloomberg Ignores the Evidence on Bond ETFs

By Mike McNamee

September 26, 2014

In response to “Pimco ETF Probe Spotlighting $270 Billion Market Vexing FSB,” we posted the following comment on Bloomberg News’ website:

Why Regulated Funds Are a Relatively Stable Source of Foreign Investment for Emerging Economies

By Chris Plantier

September 26, 2014

The press and policymakers focus a great deal of attention on flows to U.S. and European regulated mutual funds and exchange-traded funds (ETFs), in part because these funds are perhaps the most easily observed and readily measured players in capital markets.

A Look Inside ETFs and ETF Trading

By Rochelle Antoniewicz and Jane Heinrichs

September 23, 2014

Investors in exchange-traded funds (ETFs) are trading shares with each other far more than they are turning to authorized participants to create or redeem shares.

Securities Lending by Mutual Funds, ETFs, and Closed-End Funds: Are the Risks Systemic?

By Bob Grohowski

September 18, 2014

The Financial Stability Oversight Council (FSOC), the U.S. Treasury’s Office of Financial Research (OFR), and the Financial Stability Board (FSB) are charged with identifying systemic risks.

Securities Lending by Mutual Funds, ETFs, and Closed-End Funds: Regulators’ Concerns

By Bob Grohowski

September 17, 2014

This post is the third in a series that focuses on securities lending by U.S. regulated funds—mutual funds, exchange traded funds (ETFs), and closed-end funds that are registered under the Investment Company Act of 1940.

Securities Lending by Mutual Funds, ETFs, and Closed-End Funds: The Market

By Bob Grohowski and Sean Collins

September 16, 2014

As the potential risks of securities lending are discussed and debated by the Financial Stability Oversight Council (FSOC), the U.S. Treasury’s Office of Financial Research (OFR), and the Financial Stability Board (FSB), it is important to try to understand both the overall size of the securities lending market and the share of it attributable to different participants.

Securities Lending by Mutual Funds, ETFs, and Closed-End Funds: The Basics

By Bob Grohowski

September 15, 2014

The Financial Stability Oversight Council (FSOC) recently announced that it has directed its staff to “undertake a more focused analysis of industry-wide products and activities to assess potential risks associated with the asset management industry.”

Sizing Up Mutual Fund and ETF Investment in Emerging Markets

By Chris Plantier

August 18, 2014

In coming decades, emerging market (EM) economies will need substantial new capital to accompany and sustain their rapid growth.

Living Wills and an Orderly Resolution Mechanism? A Poor Fit for Mutual Funds and Their Managers

By Frances Stadler and Rachel Graham

August 12, 2014

During the global financial crisis, the distress or disorderly failure of some large, complex, highly leveraged financial institutions (banks, insurance companies, and investment banks) required direct intervention by governments—including a number of bailouts—to stem the damage and prevent it from spreading. One focus of postcrisis reform efforts has been to ensure that regulators are better equipped to “resolve” a failing institution in a way that minimizes risks to the broader financial system, as well as costs to taxpayers. The new tools provided under the Dodd-Frank Act include requirements for the largest bank holding companies and nonbank systemically important financial institutions (SIFIs) to prepare comprehensive resolution plans in advance (known as “living wills”), and creation of a new “orderly resolution” mechanism for financial institutions whose default could threaten financial stability.

Across the Universe: Seeing the Whole Picture in the Systemic Risk Debate

By Paul Schott Stevens

July 30, 2014

Astrophysicists have discovered that they can’t account for the composition and behavior of the universe without including “dark matter”—matter that can’t be observed directly.

The Real Lessons to Be Learned from 1994’s Bond Market

By Brian Reid

July 29, 2014

A recent “Heard on the Street” column in the Wall Street Journal (“Heeding 1994's Bond-Market Lesson,” July 27, 2014) is correct in saying that there’s a lesson to be learned from the 1994 bond market—but it draws the wrong lesson.

“The Age of Asset Management”—Less Risk, Not More

By Brian Reid

July 24, 2014

The following was written by ICI’s chief economist, Brian Reid, and published on FT Alphaville on July 23. For more information on ICI’s views and research on financial stability, please visit our Financial Stability Resource Center.

European Banks Significantly Reduced Borrowing from U.S. Money Market Funds in June

By Chris Plantier

July 18, 2014

As we discussed in March and April, European banks have generally become less willing to borrow from U.S. money market funds due to regulatory pressures, especially at the end of the quarter. Specifically, the new Basel III requirements seek to increase capital ratios of banks and explicitly limit how much banks fund their operations through short-term borrowing (which includes short-term securities banks issue that money market funds invest in). This quarter-end effect was particularly strong at the end of June as European bank regulators continued to monitor bank progress toward meeting the new Basel III requirements, which will be fully phased in over the next few years.

Now Off the Hill, Senator Snowe Still Brimming with Ideas, Advice

By Rob Elson

June 5, 2014

U.S. policy is ripe for reform in a number of key areas, but changes to ease the polarized political environment must come first, former U.S. senator Olympia Snowe (R-ME) told the crowd during the final session of ICI’s 56th annual General Membership Meeting (GMM), held May 20–22 in Washington, DC.

Industry Leaders Reflect on Serving Investors in an Evolving World

By Christina Kilroy

June 4, 2014

Speaking on the Leadership Panel held Wednesday, May 21, at ICI’s General Membership Meeting (GMM), fund industry leaders agreed that challenges as well as opportunities abound for their businesses in today’s complex world.

Former ICI President Matt Fink Decries FSOC’s “Revisionist History”

By Mike McNamee

May 30, 2014

Arguments that large stock and bond mutual funds are prone to “runs” that can destabilize markets go back many decades, and are as misguided now as they were then, argues Matt Fink, ICI president from 1991 to 2004, and author of The Rise of Mutual Funds: An Insider's View.

Errors of the Times: Getting the FSOC Debate All Wrong

By Mike McNamee

May 23, 2014

New York Times columnist Floyd Norris makes a number of fundamental errors in his Friday column about the House Financial Services Committee hearing and the broader debate about the Financial Stability Oversight Council (FSOC) and its review of asset management.

SEC Chair White Stresses Need for FSOC to Consult Sources for Necessary Expertise

By Rachel McTague

May 22, 2014

Securities and Exchange Commission (SEC) Chair Mary Jo White today called for the U.S. Financial Stability Oversight Council (FSOC) to use outside expertise to the degree necessary in its process of designating systemically important financial institutions (SIFIs). She asserted that it is “enormously important for FSOC, before it makes any decision of any kind, to make sure it has the necessary expertise on any of those issues.”

Headlining ICI’s GMM, Blair Talks of Tough Challenges, Vast Opportunities

By Rob Elson

May 21, 2014

Challenges abound in our increasingly global world, said Tony Blair, former prime minister of the United Kingdom. Yet our future could be brighter than ever, he insisted.

Blair’s stirring words came during a keynote speech at ICI’s 56th General Membership Meeting (GMM). After his opening remarks, Blair sat down with ICI Chairman Bill McNabb, Chairman and CEO of The Vanguard Group, to discuss a range of issues. The session headlined the three-day meeting, which began yesterday in Washington, DC.

GMM Policy Forum: BlackRock’s Larry Fink Speaks with ICI’s Paul Stevens

By Todd Bernhardt

May 21, 2014

The fund industry needs to stop focusing on the moment and start focusing on outcomes when advising investors on their resources, said Laurence D. Fink, chairman and CEO of BlackRock, at ICI’s Annual Policy Forum, part of the Institute’s 56th General Membership Meeting (GMM).

“Market Tantrums” and Mutual Funds: A Second Look

By Sean Collins and Chris Plantier

May 19, 2014

Over the past year, policymakers who are focused on financial stability have pursued a theory that mutual fund investors can destabilize financial markets by redeeming from funds when markets decline. According to this theory, redemptions by fund investors lead fund managers to sell securities; those sales drive asset prices down further and, in turn, spur more investor flight, redemptions, and price declines.

For Concerns About Risk, a Better Way Forward

By Mike McNamee

May 16, 2014

Since the financial crisis, regulators in the United States and abroad have been looking for ways to prevent a repeat. But recently it seems they’ve gone off course.

Overseas Overreach

By Mike McNamee

May 15, 2014

The Financial Stability Board (FSB)—composed of financial regulators and central bankers from around the globe—is proposing a flawed methodology that inappropriately puts regulated U.S. funds under scrutiny for possible designation as global systemically important financial institutions—or G-SIFIs.

How SIFI Designation Could Lead to a New Taxpayer Bailout

By Mike McNamee

May 14, 2014

We have spent the past several days discussing why efforts by international and domestic regulators to examine mutual funds as sources of systemic risk are unnecessary and inappropriate.

Who Are the FSB 14?

By Mike McNamee

May 13, 2014

In their search for ways that investment funds can pose risks to the financial system, regulators and central bankers from around the globe have proposed an arbitrary threshold: any investment fund with assets of more than $100 billion should automatically be subjected to further examination and consideration as a possible “global systemically important financial institution,” or G-SIFI.

The Market Crash That Never Came

By Mike McNamee

May 12, 2014

U.S. and international banking regulators, in their search for ways that mutual funds and their managers could threaten financial stability, have come up with a simple story: fund investors and asset managers “crowd or ‘herd’ into popular asset classes or securities” and thus “magnify market volatility.”

Size by Itself Doesn’t Matter—Leverage Does

By Mike McNamee

May 9, 2014

Second in a series of Viewpoints postings on funds and financial stability.

The threshold set by the Financial Stability Board (FSB) for examining whether a regulated fund could pose risk to the financial system should be redrawn—or better yet, withdrawn.

SIFI Designation for Funds: Unnecessary and Harmful

By Mike McNamee

May 8, 2014

U.S. and international regulators are examining whether asset managers or the investment funds that they offer could be sources of risk to the overall financial system and should thus be designated as systemically important financial institutions (SIFIs).

ICYMI: "The Feds Target Money Managers"

By Mike McNamee

May 7, 2014

Yesterday’s editorial in the Wall Street Journal, “The Feds Target Money Managers,” neatly summed up the case against treating asset managers as systemically important financial institutions (SIFIs) and subjecting them to bank-style regulation.

ICYMI: Congress Asks Questions About SIFI Designation and Asset Managers; SEC Chair White Provides Telling Answers

By Mike McNamee

April 30, 2014

DC scene setter, 2013–2014: The Financial Stability Oversight Council (FSOC) is examining asset managers for possible “systemically important financial institution” (SIFI) designation, which would bring with it enhanced prudential regulation from the Federal Reserve. Such “bank-style” regulation is foreign to U.S. capital markets.

ICI Statement: FSOC Seeking “Pretexts” to Designate Funds

By Mike McNamee

April 24, 2014

ICI President and CEO Paul Schott Stevens today made the following statement in response to media reports that the Financial Stability Oversight Council (FSOC) has stepped up its review of major asset managers—which could lead to their designation as “systemically important financial institutions,” or SIFIs—based on boilerplate metrics.

Seasonality, U.S. Money Market Funds, and the Borrower of Last Resort

By Chris Plantier

April 16, 2014

The March money market fund holdings data indicate a large drop in the share of fund assets allocated to European counterparties and a large increase in the share of fund assets allocated to U.S. counterparties. This shift is likely temporary and reflects reduced willingness of European banks to borrow from money market funds at the end of the quarter, rather than reduced demand from money market funds. Also, the increase in lending to U.S. counterparties is almost entirely due to the large increase in money market fund lending to the Federal Reserve via its overnight reverse-repo (repurchase agreement) facility.

ICI Responds to the FSB Consultation on Systemic Risk and Investment Funds

April 8, 2014

In early January, the Financial Stability Board (FSB)—an international group of financial authorities—published a consultation paper on the issue of systemic risk and investment funds.

ICI Response to Bank of England Haldane Speech on Asset Management and Potential Risk

By Mike McNamee

April 4, 2014

Today, ICI President and CEO Paul Schott Stevens made the following comment in response to a speech by Andy Haldane, currently executive director of the Bank of England and slated to become its chief economist in June.

U.S. Prime Money Market Funds and European Borrowing

By Chris Plantier

March 18, 2014

European holdings by U.S. prime money market funds have fluctuated significantly since early 2011.

Why Asset Management Is Not a Source of Systemic Risk

By Paul Schott Stevens

March 17, 2014

This Viewpoints post is a summary of a speech given by ICI President and CEO Paul Schott Stevens at the Mutual Funds and Investment Management Conference. The entire speech is now available.

Since September, U.S. and international regulators have released reports suggesting that asset managers or the funds that they offer may be sources of risk to the overall financial system. ICI does not agree that the asset management sector poses systemic risk. Nonetheless, these reports could be the predicate for new, bank-style prudential regulation of the asset management industry—which could significantly harm funds and the investors who use them.

ETFs Don’t Move the Market—Information Does

By Shelly Antoniewicz

March 11, 2014

There they go again.

Money Market Funds and Liquidity Ratios: Why So High and Stable?

By Chris Plantier

February 19, 2014

Second in a series of posts about ICI’s new data release, a monthly compilation and summary of portfolio data from taxable money market funds. To find out more, read the first post about the new data summary or this list of answers to frequently asked questions.

The SEC’s 2010 money market fund reforms require taxable funds to hold at least 30 percent of their assets in securities that are deemed to be liquid within five business days (known as weekly liquidity) and at least 10 percent of their assets in securities that are deemed to be liquid in one business day (known as daily liquidity). In practice, money market funds—especially government money market funds—hold liquidity well above these minimum standards, and these ratios change very little in any given month.

ICI’s New Data Release: Further Enhancing the Transparency of Money Market Funds

By Chris Plantier

January 21, 2014

The 2010 reforms to money market mutual funds greatly enhanced the transparency of these funds, giving regulators, analysts, and investors greater insight into important elements of funds’ holdings and operations.

The reforms required funds to disclose their entire portfolio holdings to the public on their company websites five business days after the end of each month. Money market funds also are required to file a more detailed disclosure—SEC Form N-MFP—with the Securities and Exchange Commission directly. The SEC releases this more detailed data to the public 60 days after it’s filed. The SEC does not, however, summarize the data, leaving the public with no non-commercial access to a broad look at holdings across the industry.

Column Makes the Same Mistakes as OFR

By Paul Schott Stevens

January 20, 2014

In recent months, both the U.S. Treasury Department's Office of Financial Research (OFR) and international regulators such as the Financial Stability Board (FSB) have examined whether asset managers pose risks to financial stability. One report is deeply flawed; the other offers a more informed view. Unfortunately, Gretchen Morgenson’s New York Times column (“Bailout Risk, Far Beyond the Banks,” January 12) veers toward the flawed report.

‘Sponsor Support’ for Money Market Funds Is Old—and Overblown—News

By Mike McNamee

October 21, 2013

A story in the October 21 issue of the Financial Times (“Almost 20 money market funds bailed out”; subscription required) takes old numbers and tries to present them as news.

Money Market Funds and the Debt Ceiling: What Do We Know?

By Brian Reid

October 14, 2013

As the U.S. Treasury reaches the limits of its borrowing authority this week, markets and the media are focusing on the risk that the United States will default on its debt and fail to pay interest or principal on maturing Treasury securities, perhaps before the end of October.

Yes, DC Follies Hurt Retirement Savers—But Let’s Not Overstate

By Brian Reid

October 10, 2013

“Debt ceiling follies” certainly do put retirement savers and their assets at risk. On that, ICI agrees with a recent Washington Post blog.

Getting the Facts Right on Money Market Funds

By Paul Schott Stevens

September 18, 2013

This week, I testified before Congress at a hearing on the issue of money market funds and recent regulatory proposals from the Securities and Exchange Commission (SEC) that would amend the rules governing these funds.

The hearing provided an excellent opportunity to continue to educate Congress on the benefits that money market funds bring to investors and to the economy as a whole. In my testimony, I emphasized the Institute’s views on making sure that regulatory proposals do not upset the crucial role that money market funds play.

Bond Fund Flows: A Little Perspective on the Big Bond Market

By Brian Reid

July 3, 2013

The sharp run-up in interest rates since late April has caused many bond funds to experience their first losses in several years.

Read more…

TOPICS: Bonds Financial Markets

IMF Analysis Ignores 2010 Money Market Fund Reforms and Exaggerates Run Risk

By Sean Collins and Chris Plantier

April 26, 2013

The Securities and Exchanges Commission’s comprehensive 2010 reforms for money market funds are a proven success. As ICI research has shown, the reforms strengthened the funds and enhanced financial stability.

U.S. Prime Money Market Funds’ Eurozone Holdings Remain Low and Limited in Scope

By Emily Gallagher and Chris Plantier

March 28, 2013

Given February’s elections in Italy and recent developments in Cyprus, questions have resurfaced about the eurozone debt crisis and how it might affect the U.S. economy.

Narrowing the Focus to Prime Money Market Funds

By Brian Reid

March 25, 2013

One of ICI’s key points in our responses to recent policy proposals for money market funds is that no case can be made for applying fundamental changes to Treasury, government, and tax-exempt money market funds.

The New York Fed’s Flawed Approach to Fixing the Money Market

By Brian Reid

March 4, 2013

William C. Dudley, president and CEO of the Federal Reserve Bank of New York, recently delivered a speech, “Fixing Wholesale Funding to Build a More Stable Financial System.” I was interested to read his remarks, as the New York Fed has been instrumental in pursuing reforms to strengthen the financial markets, particularly in the market for tri-party repurchase agreements.

Money Market Funds and the Expiration of Unlimited Deposit Insurance

By Sean Collins and Chris Plantier

January 28, 2013

As stipulated in the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Federal Deposit Insurance Corporation’s unlimited insurance coverage on non-interest bearing transaction accounts, also known as the Transaction Account Guarantee (TAG), expired on December 31, 2012.

The Reasonable Balance of the 2010 Reforms for Money Market Funds

By Sean Collins and Chris Plantier

January 15, 2013

Financial intermediaries—banks, hedge funds, insurance companies, investment companies, and private equity companies—exist to bring together those who have excess funds with those who need funds. This process naturally entails risk.

In Case You Missed It: “Don't Enact Financial Transaction Taxes”

By Ianthé Zabel

December 21, 2012

The Hill has just posted a commentary from ICI President and CEO Paul Schott Stevens in which he discusses financial transaction taxes (FTTs) and why U.S. policymakers would be well-advised to avoid enacting them.

Fund Industry Leaders Urge “Sustainable Course” for U.S. Finances

By Mike McNamee

December 18, 2012

For the good of investors and all Americans, leaders across the fund industry have been outspoken about the necessity of the U.S. government taking a sound and sustainable approach to its finances.

Read more…

TOPICS: Financial Markets Taxes

One Step Forward for Cross-Border OTC Derivative Regulatory Reform

By Giles Swan

December 6, 2012

International regulators recently published a statement updating the discussions amongst the main global financial centers about the framework that should regulate cross-border over-the-counter (OTC) derivative transactions.

Read more…

TOPICS: Financial Markets ICI Global

ICI Supports Legislation to Shield U.S. Investors from Foreign Financial Taxes

By Ianthé Zabel

November 30, 2012

ICI issued the following statement in support of H.R. 6616, a bill introduced by Representative Tom Price (R-GA) and designed to protect American investors from the application of extraterritorial financial transaction taxes.

Do U.S. Banks Rely Heavily on Money Market Funds? No.

By Sean Collins and Chris Plantier

November 14, 2012

Money market funds provide important short-term funding for the U.S. economy: these funds hold a total of $2.5 trillion in Treasury and agency securities, repurchase agreements, and other financial instruments.

U.S. Prime Money Market Funds Remain Cautious with Respect to Eurozone Holdings

By Emily Gallagher and Chris Plantier

September 21, 2012

Over the summer, prime money market funds marginally increased their holdings of eurozone issuers: from 12.2 percent of assets in June (chart) to 14.0 percent of assets in August. This increase was driven primarily by a rise in holdings of French assets (up to 5.1 percent from 4.3 percent in June) and in holdings of German assets (up to 5.1 percent from 4.1 percent in June).

Prime Money Market Funds’ Holdings Update—Eurozone Holdings Drop Close to December Levels

By Emily Gallagher and Chris Plantier

July 25, 2012

Prime money market funds reduced their holdings of eurozone issuers to 12.2 percent of assets in June from 15.5 percent of assets in May.

Three Gaps in the FSOC’s Account of Money Market Funds in the Financial Crisis

By Paul Schott Stevens

July 25, 2012

Given money market funds’ critical role in the economy and markets, the policy discussion around these funds should be precise and should demonstrate a clear understanding of the facts.

The Wall Street Journal Paints a False Picture of Money Market Funds

By Paul Schott Stevens

June 22, 2012

No one with actual expertise in the money market could recognize the false picture of money market funds that the Wall Street Journal paints in a recent editorial (“A History of Money Funds,” June 22).

An Outcome for Money Market Funds That We Must Avoid

By Paul Schott Stevens

June 21, 2012

Today, I provided ICI’s views on the state of the money market fund industry at a hearing of the Senate Banking Committee, “Perspectives on Money Market Mutual Fund Reforms.” My message to legislators was clear: Persistently viewing money market funds through the narrow prism of 2008, regulators are advancing plans for structural changes that would destroy money market funds, at great cost to investors, state and local governments, business, and the economy. We must avoid this outcome.

What a Difference a Year Makes—Prime Money Market Funds’ Holdings Update

By Emily Gallagher and Chris Plantier

June 14, 2012

As the eurozone debt crisis began to intensify last summer, prime money market funds took steps to gradually reduce their overall holdings of eurozone issuers.

Forcing Money Market Funds to “Float”: Hurting Investors, Increasing Risk

Paul Schott Stevens

June 11, 2012

It’s rare to see the Wall Street Journal editorializing in favor of regulation for regulation’s sake.

The Importance of Context in the Discussion Around Money Market Funds

By Karrie McMillan

May 31, 2012

In the debate around money market funds, we’ve seen too many instances of participants in the discussion taking positions or making assertions without properly putting things in context. This is troubling, because a poor sense of the big picture can increase the risk of bad policy outcomes for funds and investors.

Prime Money Market Funds’ Eurozone Holdings Down 50 Percent over The Last Year

By Emily Gallagher and Chris Plantier

May 21, 2012

Securities of eurozone issuers accounted for 15.7 percent of assets of U.S. prime money market funds in April, up from 14.6 percent in March.

Our Commitment to Advancing the Interests of Investors

By Paul Schott Stevens

May 9, 2012

This week, the fund industry gathers in Washington, DC, for ICI’s General Membership Meeting. This annual conference, which draws together several robust programs, offers us a chance to engage with colleagues across the industry landscape, to deepen our understanding of our businesses, and reaffirm the values that have made this industry one that serves more than 90 million shareholders.

Read more…

TOPICS: Events Financial Markets

Data Update: Prime Money Market Funds’ Holdings

By Emily Gallagher and Chris Plantier

April 20, 2012

In October and December, we discussed how portfolio managers of U.S. prime money market funds have addressed the ongoing debt crisis in the eurozone. In February, we responded to commentators’ suggestions that U.S. prime money market funds’ increase in eurozone holdings in January reflected a renewed appetite for risk.

Key Data Undercut Critics’ Arguments on ETFs and Intraday Volatility

By Rochelle Antoniewicz

April 19, 2012

Over the past year, several news stories have focused on stock market volatility, particularly the price swings that occur in the hour prior to the U.S. market’s 4:00 p.m. close. “What’s Behind That Wild Final Hour of Trading?” asked CNNMoney last November.

Commodity Price Trends: It’s Fundamentals, Not Funds

By Chris Plantier

April 17, 2012

As gasoline prices approach a national average of $4 per gallon, the role that financial investment flows into commodities markets play is once again in focus. In a forthcoming paper, I examine the relative importance of economic fundamentals and financial investment flows in explaining broad commodity price movements.

All Funds and Investors Have a Stake in Our Challenge to CFTC

By Paul Schott Stevens

April 17, 2012

ICI and the U.S. Chamber of Commerce have joined together in a legal challenge to a rule by the Commodity Futures Trading Commission (CFTC). We are asking the U.S. District Court for the District of Columbia to vacate and set aside the CFTC’s recent amendments to its Rule 4.5.

Money Market Funds and Financial Stability: Reason and the Facts Must Guide Regulators

By Paul Schott Stevens

April 4, 2012

We are pleased to see that the Financial Stability Oversight Council continues to take a thoughtful approach on the issue of designating “systemically important financial institutions.” That’s in stark contrast to some commentators, who would have regulators rush to put money market funds under that designation. As ICI has argued in a number of venues, a “SIFI” designation is inappropriate for these funds and plainly would run counter to facts and reason. Let’s review why.

Addressing the Economic and National Security Implications of Our Fiscal Crisis

By Paul Schott Stevens

March 30, 2012

As expressed forcefully by a group of fund industry leaders last November, America’s current budgetary overreach has clear and dire implications for the 90 million investors that ICI member companies serve. Today, I elaborated on those implications in a speech before a gathering of the National Strategy Forum in Chicago. What does our recent and unprecedented buildup of debt mean for our economy and our national security?

Read more…

TOPICS: Financial Markets

What Happens If ‘Floating’ Funds Don’t Float?

By Jane Heinrichs and Greg Smith

March 29, 2012

Some recent coverage—including the CFOJournal blog of the Wall Street Journal—suggests that worries about the impact on investors of forcing money market funds to float their net asset value (NAV) may be overblown. The story goes like this: the mark-to-market prices of money market funds, and the experience of a few money market funds that already operate with a floating NAV, show that fluctuations in the “floating” value would be minuscule—rarely large enough to change the penny-rounded per-share price of the fund. So if floating funds don’t float, what’s the harm?

Bringing Money Market Funds’ European Investments into Focus

By Brian Reid

March 21, 2012

In his written testimony on Capitol Hill today, Federal Reserve Board Chairman Ben Bernanke created a fuzzy and incomplete picture of money market funds and their investments in European-headquartered financial institutions. Whether by intent or not, the Fed testimony left the impression—magnified by media accounts—that these funds have a unique and substantial vulnerability to any future turmoil in overseas markets.

Regulating Funds’ Use of Derivatives: Striking a Fine Balance

By Robert C. Grohowski and Mara L. Shreck

February 23, 2012

Much has been written about the dangers of derivatives, from Warren Buffett’s quote about “financial weapons of mass destruction” to media coverage of derivatives’ role in various aspects of the financial crisis, such as the downfall of AIG. Far less attention has been paid to the benefits that derivatives can provide for mutual funds and their investors—allowing funds to mitigate risks, manage portfolios more efficiently, and access new strategies.

Read more…

TOPICS: Financial Markets

The (Dis)Connection Between ETFs and Market Volatility

By Rochelle Antoniewicz

February 23, 2012

In the past year, many commentators have charged that exchange-traded funds (ETFs) are responsible for driving stock market volatility to unprecedented extremes.

Prime Money Market Funds’ Eurozone Holdings Remain Low

By Emily Gallagher and Chris Plantier

February 23, 2012

Securities of eurozone issuers accounted for 14.0 percent of assets of U.S. prime money market funds in January, up from 11.9 percent in December (chart). This increase was driven by a rise in French assets (up from 3.2 percent to 4.6 percent) and by a rise in asset holdings of other eurozone issuers (up from 8.7 percent to 9.4 percent).

Proposal to Implement the Volcker Rule Raises Deep Concerns for U.S. Registered Funds

By Paul Schott Stevens

February 14, 2012

Congress enacted the provision of the Dodd-Frank Act known as the Volcker Rule to restrict banks from using their own resources to trade for purposes unrelated to serving clients—something known as “proprietary trading.”

Fund Investment in Commodities Provides Opportunity and Diversification for Investors

By Karen Lau Gibian and Rachel H. Graham

January 26, 2012

On Capitol Hill, a hearing at the Permanent Subcommittee on Investigations (PSI) raises questions about mutual fund investors’ ability to get commodity exposure in their portfolios and suggests the Internal Revenue Service (IRS) should no longer allow this type of investment.

ICI Registers Deep Concerns with the Volcker Rule Proposal

By Rachel H. Graham

January 18, 2012

The “Volcker Rule” provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act was written to restrict banks from using their own resources to trade for purposes unrelated to serving clients. While the Volcker Rule was not directed at U.S. mutual funds and other registered investment companies, its proposed implementation raises deep concerns for the U.S. registered fund industry.

Volcker Rule Implementation Threatens Global Investment Funds and Their Shareholders

By Dan Waters

January 18, 2012

The proposed implementation of the so-called Volcker Rule has serious implications for global investment funds and their shareholders. Like our U.S.-based ICI colleagues, ICI Global has today voiced concerns about this rule in a statement to the U.S. House subcommittees examining how the rule will impact markets and investors.

Data Update 2: Money Market Funds and the Eurozone Debt Crisis

By Emily Gallagher and Chris Plantier

January 13, 2012

In October and December, we discussed how portfolio managers of U.S. prime money market funds have addressed the ongoing debt crisis in the eurozone. Here is a look at the latest monthly data on these funds’ holdings by home country of issuer. Holdings of French issuers continued to fall in December, and almost 80 percent of these French holdings are either short-dated collateralized repurchase agreements or other instruments that mature in seven days or less.

Money Market Funds Continued to Reduce Eurozone Holdings in November

By Sean Collins and Chris Plantier

December 16, 2011

Over the last year, U.S. money market funds have significantly reduced their holdings of debt securities issued by banks and other businesses headquartered in the 17 countries that use the euro as their currency. That trend continued in November.

Time to Stamp Out the Confusion Around ‘Shadow Banking’

By Brian Reid

December 6, 2011

In the United States, money market funds are governed by tight risk-limiting rules, rules that have become considerably tighter since 2008. The Securities and Exchange Commission (SEC) has indicated further changes are forthcoming.

Yet some recent commentary and reporting on money market funds misses this fact, substituting instead the vague notion that these funds lurk in a seemingly unregulated world of “shadow banking,” an epithet used to debase a large group of nonbank financial intermediaries and activities. A recent Wall Street Journal column, for example, characterized money market funds as “one of the riskiest participants in shadow banking.” Last May, a Reuters story described shadow banking as “a network of loosely regulated private equity, hedge, and money funds that together are large enough to topple the global financial system.”

Data Update 1: Money Market Funds and the Eurozone Debt Crisis

By Sean Collins and Chris Plantier

December 2, 2011

In October, we discussed how portfolio managers of U.S. prime money market funds have addressed the ongoing debt crisis in the eurozone. Here is a look at the latest monthly data on these funds’ holdings by home country of issuer. We will revisit the topic in mid-December with updated analysis once November figures become available.

Now Is the Time to Put America on a Path of Fiscal Responsibility

By Paul Schott Stevens

November 21, 2011

On behalf of funds and the 90 million investors that they serve, fund industry leaders are sending a simple but urgent message to Congress and the White House: the time has arrived to put America’s fiscal house in order.

Thirty executives of companies represented on ICI’s Board of Governors, the chair of the Independent Directors Council, and I are joining together to send a letter to the co-chairs of the Joint Select Committee on Deficit Reduction—known as the “Super Committee”—every other member of Congress, and the President.

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TOPICS: Financial Markets Taxes

Washington Post Columnist Ignores Regulation, Transparency of Funds

By Paul Schott Stevens

November 7, 2011

Today I submitted the following letter to the editor of the Washington Post: Mutual funds are among the most regulated and transparent investment vehicles available, with investor protection as a defining principle. In his Sunday column, Steven Pearlstein chose to ignore that record.

ICI Responds to Hearing on Excessive Speculation

By Stephanie Ortbals-Tibbs

November 3, 2011

ICI issued the following statement in response to today’s hearing, “Excessive Speculation and Compliance with the Dodd-Frank Act,” before the Senate’s Permanent Subcommittee on Investigations.

ICI Responds to Hearing on Exchange-Traded Funds

By Stephanie Ortbals-Tibbs

October 19, 2011

ICI issued the following statement in response to today’s hearing in the Senate Banking Subcommittee on Securities, Insurance, and Investment, “Market Microstructure: Examination of Exchange-Traded Funds.”

Money Market Funds’ Prudent Response to European Challenges

By Sean Collins and Chris Plantier

October 14, 2011

The ongoing debt crisis in the eurozone poses challenges for portfolio managers of U.S. prime money market funds, as those managers actively continue to adjust their holdings to meet new developments. The latest monthly data on money market funds’ holdings demonstrate that these funds are carefully managing their risks in Europe, and have been gradually reducing eurozone holdings for some time now.

Investors and Their Long-Term Commitment to Saving

By Paul Schott Stevens

October 14, 2011

This week, I had the pleasure of addressing members of the Rotary Club of Seattle on “The Outlook for Investors and Investing.” My speech approached this subject in part by examining our present situation in the historical context of past market bubbles and downturns.

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TOPICS: Financial Markets

Global Markets: ICI Urges Measured Policy Approaches to Reforms

By Ari Burstein

October 12, 2011

Across the globe, regulators remain active in examining possible rule changes and other initiatives to bolster the integrity of financial markets. As these efforts proceed, ICI has urged balanced policy responses that can strengthen markets while preserving and enhancing efficiency that benefits funds and their shareholders.

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TOPICS: Financial Markets

Mutual Fund Investors Remain Steady Despite Volatile Market

By Brian Reid and Chris Plantier

September 30, 2011

Each month, ICI reports definitive long-term mutual fund flows, made up of stock, bond, and hybrid funds. The Institute also provides an estimate of weekly flows for those funds. It’s important to consider both weekly and monthly data when interpreting the activity of fund investors. Despite sizable August outflows, more-recent weekly data suggest that investors remain cautious but steady.

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TOPICS: Financial Markets

ICI Economists Provide Long-Term Mutual Fund Flow Analysis

By Brian Reid and Chris Plantier

August 17, 2011

All eyes were on the markets in early August just after Standard & Poor’s Corp. downgraded the long-term sovereign credit rating on the United States of America to AA+ from AAA and as Europe’s ongoing fiscal challenges dominated the news.

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TOPICS: Financial Markets

Standard & Poor’s Downgrades U.S. Government Debt

By Mike McNamee

August 6, 2011

On Friday, August 5, Standard & Poor’s Corp. downgraded the long-term sovereign credit rating on the United States of America to AA+ from AAA. The agency reaffirmed the U.S. government’s A-1+ short-term rating, which is the rating that money market funds rely upon in making their investment decisions. Moody’s Investor Services and Fitch Ratings Ltd. have reaffirmed their Aaa and AAA ratings for long-term U.S. government debt.

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TOPICS: Financial Markets

ICI Recommends Fixes to Margin Proposals for Uncleared Swaps

By Heather L. Traeger

July 22, 2011

Proposals on margin requirements for uncleared swaps could create regulatory gaps that would work against the goal of ensuring fair and orderly swap markets, ICI said in recent comment letters. We recommended changes to the proposals, which come from both banking regulators and the Commodity Futures Trading Commission (CFTC).

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TOPICS: Financial Markets

Let’s Preserve America’s Financial Standing in the World

By Paul Schott Stevens

July 18, 2011

The impasse between Congress and the Administration over increasing the U.S. Treasury’s borrowing limit and dealing with long-term budget deficits has raised many questions about the impact on American investors and investments, including mutual funds. At ICI, we share the deep concern that many feel about policy actions that could undermine the full faith and credit of the U.S. government.

ICI Supports Treasury Proposal to Maintain Efficiency and Transparency of Foreign Exchange Swaps and Forwards Market

By Heather L. Traeger

June 16, 2011

Foreign exchange swaps and forwards are contracts that mutual funds and other investors use to help manage their portfolios. ICI members therefore have a strong interest in ensuring the market for foreign exchange (FX) swaps and forwards is highly competitive, efficient, transparent, and fair.

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TOPICS: Financial Markets

SEC Chairman: SEC Examining Role of High Frequency Traders

By Rachel McTague

May 6, 2011

On the first anniversary of the 2010 “flash crash,” Securities and Exchange Commission (SEC) Chairman Mary Schapiro highlighted the role of high frequency traders that day and said there is cause for the SEC to examine their role.

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TOPICS: Events Financial Markets

CFTC Proposal Would Subject Funds to Duplicative, Conflicting Regulatory Requirements

By Sarah Bessin and Rachel Graham

April 15, 2011

Funds use swaps and other derivatives in a variety of ways to manage their investment portfolios, and many of these uses are unrelated to speculation. This is why we have been particularly concerned by a proposal from the Commodity Futures Trading Commission (CFTC) to revise Rule 4.5, which provides an exclusion for funds and certain “otherwise regulated” entities from regulation as commodity pool operators (CPOs).

America’s Fiscal Challenge

By Paul Schott Stevens

April 12, 2011

Friends and colleagues sometimes ask me, “What keeps you awake at night?” In recent months, it’s the nightmarish level of debt that the federal government is accruing.

Put all politics aside: it is impossible to deny that Americans face an acute problem of budgetary overreach. Even before the financial crisis, our position as the world’s leading economy made us forgetful of basic principles of fiscal discipline—particularly the notion of balancing spending and revenues over the course of an economic cycle.

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TOPICS: Financial Markets

The Challenges of Dodd-Frank Implementation

By Paul Schott Stevens

March 31, 2011

Even though our industry was not a direct target of the Dodd-Frank Wall Street Reform and Consumer Protection Act, funds face challenges in coping with the law’s implementation. At the U.S. Chamber of Commerce’s Fifth Annual Capital Markets Summit yesterday, I had a chance to discuss several of these challenges and their implications for funds and regulators alike.

For the Fund Industry, “Sunlight Through the Clouds”

By Karrie McMillan

March 29, 2011

The U.S. financial system is emerging from the global crisis. Financial markets have regained their footing. The Federal Reserve has significantly reduced its emergency facilities. The Securities and Exchange Commission has adopted its amendments to Rule 2a-7 for money market funds.

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TOPICS: Events Financial Markets

“Systemically Important” Designation is a Tool That Should Be Used Sparingly

By Paul Schott Stevens

February 25, 2011

This morning, I participated in a panel discussion addressing the business community’s concerns with the Financial Stability Oversight Council’s (FSOC) proposal on the criteria to measure a company’s systemic risk. It was a lively and timely conversation; I wanted to share here some of the perspective that I brought to the panel on behalf of ICI.

Pursuing Sound Financial Regulation for International Markets

By Ari Burstein

February 25, 2011

Whether at home or overseas, ICI works to ensure that regulators pursue the creation of consistent and sensible rules for the financial markets. Internationally, we recently provided input to the European Commission, which is taking a comprehensive look at ways to reform regulation of European financial markets.

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TOPICS: Financial Markets International

SEC Proposal on Municipal Advisor Registration Could Create Unnecessary Regulatory Burden

By Heather L. Traeger

February 24, 2011

This week, we wrote a letter to the SEC to air our concern that its proposed registration regime for “municipal advisors” is too broad and will subject many well-regulated entities and individuals, including advisers to funds, to duplicative regulatory requirements.

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TOPICS: Financial Markets

ICI Letter Details Benefits of Having Diversified Funds Investing in the Futures and Swaps Markets

By Heather L. Traeger

January 12, 2011

We’ve just filed a letter to the Commodity Futures Trading Commission (CFTC) on the use of position limits for derivatives. Our letter urges the CFTC to establish an exemption from position limits for funds that comply with the diversification and leverage requirements of the Investment Company Act of 1940.

Equity Market Issues: Our Industry Must Be Challenged, Too

By Karrie McMillan

December 9, 2010

ICI is hosting its annual Equity Markets Conference in New York City today. To get the conference started, I urged everyone to keep one number in mind: 90 million. That’s the number of investors who are saving for their futures through the funds that ICI members offer.

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TOPICS: Financial Markets

ICI Warns Against “Piecemeal” Approach to Municipal Securities Disclosure

By ICI Viewpoints

November 16, 2010

The Institute filed a comment letter today with the Securities and Exchange Commission on its proposals to improve disclosure for asset-backed securities. Our view broadly is that the proposals will help mutual funds assess risks.

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TOPICS: Financial Markets

Kauffman Foundation Paper Makes Accusations That Are Not Plausible

By ICI Viewpoints

November 15, 2010

A November 2010 paper on U.S. capital markets from the Kauffman Foundation shows a fundamental misunderstanding of how exchange-traded funds (ETFs) operate. The authors are respected industry authorities, and they offer some ideas that merit further consideration. But the paper levels several accusations against ETFs that are just not plausible.

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TOPICS: Financial Markets

Companies Should Be Designated as “Systemically Significant” Only in Limited Circumstances

By ICI Viewpoints

November 5, 2010

The newly-created Financial Stability Oversight Council (FSOC) has been tasked with determining which nonbank financial companies are systemically significant and therefore require additional regulatory scrutiny. The FSOC has asked for input regarding the specific criteria and analytical framework it should use in making those designations.

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Market Turmoil and Liquidity Crunch Rooted in the COVID-19 Pandemic

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Holistic Understanding of Markets’ Reaction Is Crucial to Understanding Funds’ Experiences

Federal Reserve’s Actions Were Swift and Necessary

Regulated Funds Proved Largely Resilient to COVID-19 Market Turmoil

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2017 Annual Report to Members: A Message from the Chairman

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2017 Investment Company Fact Book: Letter from the Chief Economist

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