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Federal Register / Vol. 86, No. 26 / Wednesday, February 10, 2021 / Notices March 18, as remarketing agents offered VRDNs at higher yields in response to tax-exempt MMFs putting back their notes to tender agents. The spike in the SIFMA index yield caused a drop in market-based NAVs of tax-exempt MMFs which mostly have stable, rounded NAVs.
B. Stresses on Prime and Tax-Exempt Money Market Funds and Other MoneyMarket Investment Vehicles As part of the general deterioration in short-term funding market conditions, prime and tax-exempt MMFs experienced heavy redemptions beginning in the second week of March 2020. Outflows increased quickly, peaking on March 17 for prime funds the day the Federal Reserve announced the CPFF and on March 23 for taxexempt funds one business day after the Federal Reserves MMLF was expanded to include tax-exempt securities.25
Institutional prime fund outflows.
Among institutional prime MMFs offered to the public, outflows as a percentage of fund size exceeded those in the September 2008 crisis. However, the dollar amount of outflows from these funds was much smaller in March 2020, in part because their assets on the eve of the pandemic were less than onequarter of their size on the eve of the 2008 crisis. Over the two-week period from March 11 to 24, net redemptions from publicly-offered institutional prime funds totaled 30 percent about $100 billion of the funds assets, and these funds outflows exceeded 5
percent of their assets on three consecutive days beginning on March 17. For comparison, in September 2008, the highest outflows from these funds over a two-week period were about 26
percent about $350 billion of assets.26
A sizable portion of the institutional prime fund sectors assets are in funds 25 The following discussion provides data on the size of the largest outflows from different types of MMFs during a given two-week 10 business day period in March. These two-week periods do not necessarily coincide. For example, the two-week period for institutional prime funds begins two days before that for retail prime funds, in part because institutional prime funds experienced heavy redemptions earlier than retail prime funds. Using data for one-week periods provides qualitatively similar results. For comparison purposes, we also provide data on outflows for a standard two-week period from March 9 to March 20 for all types of MMFs, based on SEC Form NMFP weekly data.
26 Data on daily MMF flows are from iMoneyNet.
SEC Form NMFP provides an official source of weekly flows data for weeks ending on Fridays.
For the two weeks from March 9 to 20, outflows from institutional prime funds that are offered to the public as proxied by their presence in commercial databases totaled $90 billion 27
percent of assets. Form NMFP weekly flows data are not available for the September 2008 crisis.

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that are not offered to the public.27
These non-public funds had smaller outflows than their publicly-offered counterparts, indicating that, on average, the former do not demonstrate the same vulnerabilities as funds that are offered publicly to a broad range of unaffiliated institutional investors. This difference may be attributable to investor characteristics as much as or more than the nonpublic nature of the offering. Outflows from non-public institutional prime funds totaled 6
percent $17 billion of assets from March 9 to March 20.28
Retail prime fund outflows. Although outflows from retail prime MMFs as a share of assets in March exceeded retail prime MMF outflows during the 2008
crisis, the March outflows from retail prime MMFs were smaller than outflows from institutional prime MMFs. The redemptions from retail prime MMFs in March began a couple of days after those for institutional funds. Net redemptions totaled 9
percent just over $40 billion of assets over the two weeks from March 13 to 26.29 In September 2008, the heaviest retail outflows over a two-week period totaled 5 percent of assets. Retail prime funds had about 60 percent more assets in 2008 than in February 2020, so outflows were similar in dollar terms in both crises.30 Some retail prime MMFs experienced declining market-based prices in March, but none of these funds reported a market-based price below $0.9975. Moreover, retail prime MMF
flows in March 2020 appear to have been unrelated to market-based prices, as funds with lower market-based prices did not experience larger outflows than other retail prime MMFs.
Tax-exempt fund outflows and declining market-based prices. Outflows from tax-exempt MMFs, which are largely retail funds, were 8 percent $11
billion of assets during the two weeks from March 12 to 25.31 In 2008, when tax-exempt MMF assets were more than four times larger than in February 2020, such funds had outflows of 7 percent almost $40 billion of assets in one twoweek period. In March, some retail tax27 See footnote 12 and accompanying text for an explanation of publicly-offered funds versus nonpublic funds.
28 Source: SEC Form NMFP.
29 Source: iMoneyNet daily data. Similarly, data from SEC Form NMFP show retail prime fund outflows of 7 percent of assets $33 billion over the two week period from March 9 to 20.
30 See footnote 18 explaining that data on institutional and retail MMFs prior to 2016 may not be entirely comparable with current statistics.
31 Source: iMoneyNet daily data. Similarly, data from SEC form NMFP show tax-exempt fund outflows of 8 percent of assets $11 billion over the two weeks from March 9 to 20.

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exempt MMFs also had declining market-based prices. Although none of these funds broke the buck, one fund reported a market-based price below $0.9975. As with retail prime MMFs, there does not appear to have been a relationship between a decline in a particular retail tax-exempt MMFs market-based price and the size of its outflows.
Declining WLAs and relation to fees and gates. As prime funds experienced heavy redemptions, their WLAs declined, and some funds WLAs which must be disclosed publicly each day approached or fell below the 30
percent minimum threshold that SEC
rules require. Investor redemptions, which may have been further exacerbated by declining WLAs, can put additional pressure on fund liquidity during times of stress. As previously noted, when a funds WLA falls below 30 percent, the fund can impose fees or gates on redemptions. Market participants reported concerns that the imposition of a fee or gate by one fund, as well as the perception that a fee or gate would be imposed by one fund, could spark widespread redemptions from other funds, leading to further stresses in the underlying markets.
Although one institutional prime fund with assets that declined from $3.8
billion at the end of February to $1.5
billion at the end of March had WLAs below the 30 percent minimum, it did not impose a fee or gate in March.
Preliminary research indicates that prime fund outflows accelerated as WLAs declined, suggesting that the potential imposition of a fee or gate when a funds WLA drops below 30
percent encouraged institutional investors to redeem before that threshold was crossed.32 Additionally, some market participants and observers have suggested that investors potential motivation to redeem as a MMF moves toward the 30 percent threshold is primarily driven by concerns about gates, rather than liquidity fees, because MMF investors have a low tolerance for being unable to access cash on demand.
Sponsor support. As strains on prime and tax-exempt MMFs worsened, two fund sponsors provided support for their funds. They did so by purchasing securities from three prime institutional MMFs and making a capital contribution to one tax-exempt fund.
Other investment vehicles that invest in securities and other instruments 32 See Lei Li, Yi Li, Marco Macchiavelli, and Xing Alex Zhou, Runs and Interventions in the Time of COVID19: Evidence from Money Funds, working paper 2020, available at https
papers.ssrn.com/sol3/papers.cfm?abstract_
id=3607593.

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