What the new money market reforms mean

Frank Dotro (00:00):  Welcome and thank you for being here with us today. My name is Frank Dotro, and I am the head of Global Liquidity Relationship Management at Invesco. We are also joined today by my very esteemed colleague, our Chief investment Officer for Global liquidity, Laurie Brignac. Before we dive into the topic de jour today, uh, just an administrative note. You all should have the ability to ask questions on screen, and we will be monitoring that throughout today's conversation. Um, also, we blocked an hour for this conversation. Uh, we're happy to go as long as we need to, uh, or as short as we need to, and we can always follow up directly with specific questions. So, with that, I thought we'd kick things off. Laurie, the reason we are all here today is because the SEC finally voted on the latest round of money market fund reform. What did we actually get from the SEC yesterday?

Laurie Brignac (00:59):  Well, we got a little bit of a mixed bag. Um, we've got some good news, um, and we've gotten some bad news here. So let's just kick off with the good news. Um, the good news is that the SEC did remove the link, um, between portfolio liquidity and fees and gates. Um, that has been eliminated, and they also got rid of gates, which is terrific. And just a reminder, gates, uh, liquidity fees and gates have been applied to institutional and retail prime and, uh, municipal money market funds. So that's the good news. We also didn't get swing pricing, which to be perfectly honest, um, surprised me a little bit.  I felt like they were gonna push that through no matter what. Um, we did the SEC also did increase the amount of  liquidity that the portfolios are gonna have to hold.

(01:49):

Um, they increased it from 10 and 30% daily and weekly liquidity to 25 and 50%, um, and more good news, I will, well, I'm not saying that's great news. Um, but the other thing that I thought was good news was they gave us some, I think, some pretty fair guidance on what to happen if rates go negative. On the bad news side, um, in lieu of swing pricing. Um, and gates, the SEC did require a mandatory liquidity fee. And this is gonna be just for institutional prime and municipal portfolios. So just the short, I know we'll talk more about it, but, um, basically if a portfolio has redemptions of over 5% of its net assets, a mandatory liquidity fee must be, um, applied. So that was the bad news and a, and a bit of a surprise from yesterday.

Frank Dotro (02:42):  So a bit of a mixed bag for sure, but I think everyone's happy about the swing pricing change. So on the mandatory liquidity fees, could we dive a little bit into that one?

Laurie Brignac (02:53):  Yeah. Like how's it actually gonna work? And to your point, um, when you opened up the call, this is very fresh. Um, you know, we've got 424 pages to kind of dive through of reform. But I think when it kind of comes down to, um, the spirit of the law versus the letter of the law. So if you listened to the conference yesterday, um, what was really surprising when they were talking about this mandatory liquidity fee is they implied that yes, there is this mandatory liquidity fee, um, but as if markets are operating normally, the actual fee would be very small, it would be de minimis, so it could potentially be waived. They would expect it to really be applied when there is a market disruption. But having said that, let's talk about how it would actually work, um, and for what we do know, um, because there are still a lot of questions cuz that's what they said in the, in the meeting.

(03:47):

But when you actually start diving into the actual text and start running through scenarios, it's not a hundred percent clear. So also before we go into that too, um, for our, for our colleagues and, and listeners, there are a lot of industry calls that are happening some this afternoon, some tomorrow, some next week. So one of the things that we do wanna get out of this meeting today is, you know, be able to get your questions to make sure that we are as an industry, working on this together, you know, and providing feedback as we get it. But you know, as it's currently written, if an institutional prime, um, or municipal money market fund has over 5% of net assets in terms of redemption on any given day, the advisor is gonna have to do a pro rata slice of the portfolio and determine how much would it cost to liquidate a pro rata slice of the portfolio, um, and apply that to the redemptions for that day.

(04:47):

Having said that, if it's unclear, you know, as to what the cost is, they were said we could apply a, you know, 1% fee. Bizarrely there's no maximum fee. So right now, if we have, you know, the way the liquidity fees are written, we could go up to a 2% liquidity fee. Here it's either zero and, and, and then there's no maximum. But I do think it's interesting from the way they were talking about this, is that if markets, again, are operating normally, then in theory the fee could be quite small, even negligible, so it could be waived. So they really thought that on any given day, um, they thought maybe less than, you know, two or 3% of the portfolios out there would even have redemptions of that size. So we really need to think about, well what does this look like? How does it actually work?

(05:41):

And the only other thing that I will say before I take a breath and let you ask another question, Frank, is, you know, how quickly can we do this? Um, you know, and turn it around, you know? So I think we we're gonna start getting into some of the operational issues. And the last thing I will say, one of the things the SEC was very clear on is they wanted to kind of take away the first mover advantage, but they also wanted to take away some of the lights that they had around, you know, our liquidity percentages. They didn't wanna just have these triggers, um, that people would potentially run against. So we'll have to see as we continue to dive through this, what it's actually gonna look like.

Frank Dotro (06:23):  Interesting. So you brought up at the top there spirit of the law versus letter of the law, which I think is important and it sounds like it's somewhat of fluid situation and hopefully through some of these conversations across the industry will come to a more concrete version of what this will look like. Um, the other item you mentioned was higher liquidity requirements. Can you talk a little bit about how that might impact the funds and then maybe any knock-on effects that might have in the commercial paper market?

Laurie Brignac (06:52):  Yeah, so it's really interesting when you kind of look at, um, money market funds. So right now, as I mentioned before, we have to hold 10% of portfolio assets in daily liquid assets, and 30 a minimum of 30% weekly liquid assets. So that's been increased to 25% and 50% respectively. The majority of the industry, and this applies to all money market funds, so, um, obviously the way treasuries and agencies, you know, are considered, they're considered to be liquid. It's really not an issue for the treasury and agency funds. This is really more for prime funds. Um, and even, um, municipal funds, again, very heavy in in VRDNs, but when you look at prime funds across the industry, we're already holding quite a bit of liquidity. As you know, we've got the 30% limit and all the triggers that go into effect, you know, if our weekly liquidity drops below that 30%.

(07:48):

So as an industry, we've always held more liquidity than what was required. Um, well now they've increased, we're already really sitting around 50% probably, um, most of the time for a couple of different reasons. Number one, we've had a FED, you know, that also has been raising rates. So it's been prudent to hold, you know, higher levels of liquidity, you know, and B, we've always wanted to stay far away from that 30%, you know, weekly liquidity. I think the good news in terms of the impact on the fund, we're sort of already there, um, kind of the way I'm looking at this. Um, you know, so I don't think it's gonna be that big of a shift. Now you can argue in different interest rate environments, is this gonna be, you know, harmful to the portfolio yields, you know, this is something that'll bear out over time.

(08:33):

But I think for now, I don't think it's that big of an issue for us and just really, you know, how does it impact the commercial paper market? I mean, when you look at institutional prime funds, they are around $270 billion, I think is the last time I looked. So, you know, the industry is already much smaller. Um, you know, and so from from our perspective, you know, there's so many other participants in the front end of the market as well. And I know a lot of you guys have heard me talk about the fact that it's not just prime funds. You know, when you think about prime funds in the percentage of the CP market, it's still quite, you know, it, it's still quite small. There's a lot of other people that buy commercial paper on the front end of the curb. So, you know, I don't think it's really gonna have that big of an impact, you know, on the CP market. The other thing too though, that we see is that a lot of the issuers that we buy are also very good at making sure that, you know, the people that buy their programs are very diversified. So I think that's also really helpful. So they're not just a hundred percent dependent on, on money market funds. So, you know, from that perspective, I don't think that this is gonna be, you know, that big of an impact to the funds and to the, to the CP markets.

Frank Dotro (09:48):  That's, that's really good news. It sounds like it's incremental change. Um, and you talked about how the majority of assets have moved away from prime and into stable NAV funds. The other thing you did mention at the top was the changes that they proposed should there be a negative interest rate environment… And what would that do for those stable NAV funds?

Laurie Brignac (10:13):  Yeah, this I was actually pretty happy about. And just to, to remind, you know, um, people about what we were looking at in the original proposal. You know, unfortunately, as we were all very painfully aware, we've had a couple of different rounds of zero interest rates since 2008. Um, and obviously part of that is, you know, obviously people have to waive. I know we've always been very committed to making sure that we are providing a yield to our clients that are in our portfolios. Um, but when you've got bills, you know, yielding five to 10 to 15 basis points, waivers are just part of the business and it is part of doing business. Well, obviously there have been times when rates are at zero, we would see negative interest rates on bills, whether it was a quarter end, and we saw it obviously in March of 2020.

(11:04):

So the question kind of came up again, what happens if the gross yield of the portfolios goes negative? There's nothing left to waive. How do we do that? You know, and one of the things that the SEC requires money market funds to be able to do, whether you're a stable NAV fund or a floating NAV, you know, we have to be able to transact at a floating NAV. But we had asked the SEC for guidance, could we use reverse distribution mechanism or RDM or share cancellation? And this is what we used in Europe when the ECV went negative and it worked really well. So meaning the NAV, you know, you still transacted a stable NAV, but as rates went more and more negative, you know, what we would do is just reduce the amount of shares outstanding.

(11:49):

So you could either float your NAV or you can do RDM and the SEC came out and said, no, we prefer the floating NAV route. Um, they did not want us using RDM, and the other interesting thing that they did in the proposal, which I thought was quite bizarre, since we can already float our NAV, they put a requirement on money fund advisors to make sure not only could we float our NAV, but we had to make sure that all of our partners downstream partners could also float their NAV and if they couldn't, we weren't allowed to offer our portfolios on certain platforms. So it kind of put us in an odd position of having to police, I mean, we always wanna make sure that we're working with our partners and they can facilitate, you know, everything that we need them to on behalf of our clients, but it put us more in a, in, in a police type situation.

(12:42):

So what the SEC um, came out with yesterday, which I was very happy to see, is they said, you know, forcing a floating NAV may not always be in the best interest for clients. There are certain clients that actually would prefer to keep the stable NAV and have less shares, meaning use the RDM option versus the floating NAV. And they also dialed back what they were expecting us to do, which is to effectively make sure that, you know, our portfolios were only offered, you know, on platforms that could support a floating NAV. So, you know, I think that they kind of stepped back from that. So I think that that was really good. So I think at the end of the day, it, it is allowing us as advisors to work with our partners and our clients to say, which one do you prefer? You know, because thankfully right now we don't have to deal with negative interest rates. We're far away from negative interest rates in terms of the rate environment, you know, but when it's time to have that conversation, you know, it's gonna be something that we can provide the best outcome, I think, for our clients.

Frank Dotro (13:51):  That's really helpful. And I think it's always nice when there's some level of flexibility afforded to us, right? As you mentioned, to give clients their, their optimal outcome. So yeah, one of the things that we talk about with clients, and I think clients appreciate is, is how transparent money market funds are. Now, there were some, uh, discussion in yesterday's meeting about that and some implications in the final version of reform that was approved, uh, as it relates to reporting requirements. Can you talk a little bit about those?

Laurie Brignac (14:22):  Yeah, so a couple of things, you know, and again, um, you know, I, I think one of the best things that the SEC did in the different rounds of reform that we've seen now we're getting very good at this by the way, um, was the additional transparency and making sure that the way that we, the data that we put out about our portfolios is consistent, you know, um, with other money fund managers so that our investors who might use more than one fund family, you know, they're comparing apples to apples. You know, what you buy a, a big part of what the struggle was in 2008, apart from, you know, the obvious issues that we were having was clients didn't really know what they owned in their portfolio. And so the SEC also, after looking at what happened in March, um, of 2020, they want more information around, um, what we're doing in our portfolios.

(15:16):

Because even though we put a lot of this information on our website on a daily basis, um, and we put our holdings out there on a weekly basis, the SEC really only gets full holdings from us once a month, on month-end. The form in NMFP say that five times fast. Anyways, one of the, they wanna get more information from us. So one of the things that was in the proposal, which we were not a fan of, was they wanted us to provide information our client names of any client that has more than 5%, you know, in a share class. And it, it really felt very intrusive. So that was one thing they wanted to know more about who were the buyers of money market funds. They also wanted to know, you know, when non, um, government money market funds sold securities before they matured, cuz they wanna be able to see some of these flows and understand what's actually happening in the portfolios.

(16:12):

They also just want a little bit more, you know, detailed information about, about the funds more broadly. So what we ended up getting yesterday, which I was very happy to see, um, was they dialed back, they listened to us, you know, when we kind of highlighted some of the privacy issues, I don't think our clients want us putting our name, their names out there, um, for all to see. And is it something that just the SEC wanted that maybe wouldn't be available to the rest of the public or would it be public information? So they actually walked back from that. So that's good. What they wanna understand is client type. So we are gonna have to give more information to the SEC, but not about particular names. You know, is this a, you know, is this a corporate, is this state and local?

(16:58):

What, what are, what is the client makeup? So they do want that. They do still want information about, you know, our trades, you know, if we sell something before it matures, um, you know, so there is gonna be more information that will be available to them and more information that'll, that'll end up being available, you know, to our underlying clients. One of the things that, you know, I think as we start walking through this is gonna be what are they going to do with the information? Because as we all know, you know, a data point in time doesn't necessarily tell a story. And, and I know a lot of, a lot of you have heard me say this before, but you know, we are fans of, of selling, you know, portfolio securities at times, you know, and testing our brokers, you know, we wanna make sure that we are transacting with counterparties that will also provide balance sheet and liquidity, um, you know, when the time comes.

(17:53):

And so, you know, what I'm hoping is that the SEC will be engaging in dialogue. So if we are just testing bids in the market, you know, if we wanna sell something to see how, you know, dealer A is doing versus dealer B, that they don't take that data point, you know, and think that that means there's stress in the market. I think it's just best practices. So with everything, you know, some of this stuff remains to be seen, but I was very happy to see that some of the, the requirements around the reporting that kind of walked back from, cuz I was very concerned about the privacy issues.

Frank Dotro (18:30):  Yeah, it sounds like they landed on a, definitely a better outcome than what was originally proposed. So, um, lots to unpack there. As you mentioned, a lot of this is still very fluid and we'll kind of come to fruition over time. But the one thing that's probably the most important is, and I know there was some, um, questioning of it by the SEC commissioners themselves. When does all of this actually go into effect?

Laurie Brignac (18:56):  Yeah, how does it work? Well, so it's staggered. They've got a staggered timeframe. So I think just to remind everybody, so we've got the proposed, proposed, I keep saying proposed rules, the final rule, um, but it doesn't go in, it has to be put into the federal register. Um, and that's when the clock starts ticking. And then some of these rules go into effect 60 days after it's published in the, in the federal register. So we can start working on it now, but the clock hasn't actually started. Um, and historically it's taken about a month, um, because the federal register, obviously they support, you know, all the different agencies. So think of all the rules that are coming out, not only from the SEC, the CFTC, all these other regulatory bodies. So it's gonna take a little bit for them to get that done.

(19:46):

As a matter, I was trying to look before we got on the call to see how long it took to get the proposed rules. Um, but we're gonna say probably about a month. So what's gonna go into effect immediately, meaning 60 days after the, um, um, the rules posted in the federal register. Thankfully the removal of redemption gates that goes away. Um, the ti any ties to our liquidity levels is gonna go away. That'll go away, you know, immediately actually start holding the higher liquidity levels, the 25 and 50%. And as I mentioned, you know, that really isn't gonna be a big game changer, um, for us in terms of kind of how we're managing the portfolio a year from now or a year. Again, um, once the rules go effective, we'll have a year to put together the mandatory liquidity framework. So we've got some time to kind of dive into the details.

(20:45):

We always kind of say the devil's in the details on these kind of things and really say, okay, how is this actually gonna work? They did come out and say that some of these reporting changes, and a few other things that I didn't mention too was, you know, we're gonna have to notify the, let the SEC know, you know, um, you know, on our monthly reporting if we charge liquidity fees, um, if there's any share cancellations, if we go negative and things like that. So all of that stuff is gonna be very public to clients as well and to the SEC. But all of these new reporting changes are gonna be, uh, they gave us a date of June 11th of, of next year. So, you know, there's some good news immediately, um, and probably plenty of plenty of work to do, um, as an industry over the next couple of months as we unpack this thing.

Frank Dotro (21:36):  All right, so there's, we have some time, although it is a lot to unpack, so we're probably gonna need that time, uh, to get everything in order. Um, I guess we can pause there and Laurie see if there's any questions from our audience today.

Laurie Brignac (21:51):  Yep. And I am looking, so we answered the question. We got a question on timing. Um, one of the questions though, just diving into it a little bit more, does it impact customers based on the size of their investments? No. Um, and I'm assuming that's around the liquid, the mandatory liquidity fees. And again, just a reminder, this is for institutional prime, um, not retail prime, and it, the liquidity fees are going to be based on the redemptions, the overall redemptions of the portfolio for that day. Um, and so it's not particular to, to one client over another. Um, let's see, swing pricing, um, you know, any explanation as to why they didn't have it? Do we expect it to show up later? You know, I think on the swing pricing and, you know, the other thing too is remember there is swing pricing on non-money market mutual funds.

(22:50):

Um, and so the SEC has really been looking at that just more broadly, like, why aren't, you know, why aren't mutual funds, non-money market mutual funds using that already? I think given all the moving parts with the discussions around swing pricing, not only in non-money market funds, but also, you know, mutual funds globally, because we do know they use swing pricing in Europe. Um, I think the SEC is also getting their head around some of the structural differences between how mutual funds are traded in EMEA versus how, you know, the plumbing works here in the US. I don't think that we're gonna sing, see swing pricing come back up, um, for money market funds, thankfully. Um, I think that is gonna be something that, uh, they're gonna be focused more on for the non-money market funds. Another question we have is, would the fee be applied to the entire fund?

(23:46):

Um, or is it just the clients that are redeeming that day? From what we can tell, it's just for the redeeming clients. So one of the things that we push back on our comment letter, um, on the swing pricing is that that impacted everybody. Whether you left or not, you know, at least a, you know, liquidity fee, you would apply it to the people that are redeeming. There's no impact at all to the underlying shareholders that, that that didn't redeem, you know? So, you know, I think in some ways that's, it's a better outcome than swing pricing. But I don't know, um, for the clients that, um, I don't know how many people actually listened and watched the SEC um, debate on this. So it passed kind of a long party lines, a three-two vote, and the two commissioners that actually voted against the reform, you know, pretty much had the same views.

(24:38):

Um, and commissioner, I think it's, um, I keep wanting say Pierce, but I don't think that's how you pronounce her last name, Perrs, um, she said one of the reasons she was voting against it was the SEC proposed swing pricing. And so what we did as an industry is say, okay, we don't like that, but just to say no in these kind of situations, no, without providing some sort of option is probably not the best outcome. Cuz they'll say, too bad, this is what you get. So that's why the industry said, well, what about fees? Get rid of gates, maybe fees are a better way, you know, to, to kind of try to remove that first-mover advantage. And I think the way she did it was, um, the way she described it I thought was pretty, pretty humorous. She says, you know, if you ask, and I'm paraphrasing so apologies to the commissioner on this, but she was like, you know, if you ask somebody do they want one or four flies in their bowl of soup, of course they'll take one, but they prefer none.

(25:42):

So our view on this is we don't want swing pricing, we don't think it works. It's not fair to the shareholders that remain or to anybody quite honestly. So if you, if you're just trying to impact the clients that are running, so to speak, um, that's where you could use the liquidity fee as an option. So there's still a lot to work out here in terms of how does it actually work and the timings and, and all that kind of stuff, but it's not a great outcome. Um, but I think it is gonna be better than swing pricing. And I think it's really like we're running the numbers. What does a de minimis fee look like, you know, in a normal interest rate environment. So even if we did, you know, have a day where we had more than 5% redemptions on one of our institutional prime money market funds, what would that fee look like?

(26:31):

Is it large enough to even charge? Is this kind of a non-event? I know one of the things in our comment letters, um, we were saying we thought 5%, 10% redemption might be a trigger than a 5%, but you know, the SEC um, decided to go a little bit more conservatively. And the last thing too, for those of you that were around for the last round of money fund reform, it was one of those situations where we were talking about fees and gates or the floating NAV and the SEC said, well, if one is good, two is better, you know, and not recognizing what they set up around the liquidity percentages and the gates and, and things like that. And this feels a little bit like that, you know, we don't have swing pricing, um, but since you guys brought up fees, we're gonna give you fees.

(27:20):

So we really didn't have a chance to comment on fees as a standalone and how it actually works. And so that's another reason two of the commissioners actually voted against this. They felt like the industry, you know, and the subject matter experts and the clients should have the opportunity to actually talk about what is now a rule, you know, around this mandatory liquidity fees. And again, it is just on institutional prime and, um, tax-exempt portfolios. So I think that covered off, at least the main ones that I saw come, oh, wait, there's more. Frank, I don't know if you've got any that are coming in. Um, do you think that the rules will solve the underlying issues that negatively impacted money markets during March of 2020?

(28:14):

I don't, I, let's put it this way, it depends on how we wanna define that answer. I think the uncertainty around a gate is really from what we heard, you know, from our clients that we were talking to, it was the uncertainty that they could not get access to their cash because obviously these clients are, you know, are already in a floating NAV product. So the price of the product itself was not the issue, it was just access to it. Um, so in some sense, I think getting rid of the gates would solve a lot of the problems. I think as we kind of dive into, and I, I have this big 400 page book, apologies to my colleagues that cringe, you know, when you print, print out paper, but you really need to dive into those, the text and see how does this actually work?

(29:06):

Because one of the things that we were really pushing for, quite honestly was transparency. You know, we wanna make sure, and that's the other thing, and I was talking about it with your, your holdings as an investor, you wanna know what you own and how and when will you get access to your money, you know? And so if it's simple and it's transparent and it's easy to understand, I think that's solved a lot of the problems. You know, so I think we're gonna be having a lot of conversations about historical flows, you know, historical market moves, what does that look like? Um, I think it will help getting rid of the gates. We're not gonna know until, until unfortunately we have another, another event which knock on something, we don't wanna have to do that again. Um, let's see. How do you expect the spread between prime and government funds to be affected by the new liquidity requirements?

(29:59):

You know, I think that's gonna be very, um, interest-rate-environment specific. So if you look at where we are today, most of the prime funds are holding around 50% liquidity. So I think one of the things, and we're debating it on the desk, and I know some of, some of my team members are dialed in and, and we'll continue to duke it out and we'll duke it out as an industry is, you know, if you think about the first round of money fund reform, when we, the first time we had this minimum liquidity requirement of 10% daily, 30% weekly liquidity, how that worked was we had to hold these minimum levels of liquidity if for whatever reason, whether there was a redemption or, you know, trade fa, whatever it may be, and you dip below, there was nothing you really had to do because our portfolios are so liquid, liquid you could sell to raise liquidity if you wanted to, or odds are the next day it's gonna self-correct.

(30:56):

So what it meant is you can't buy out the curve. You can only buy overnight until the liquidity percentages, you know, um, obviously correct themselves. So if you look at pre this last round of reform, when they put the fees and gates and tie that to our weekly liquidity, you know, we pretty much stayed pretty close to the minimum liquidity levels if that's what the interest rate and credit environment dictated. You know, we didn't have to hold X percent over a minimum because we do that now because we wanna make sure people are comfortable that we're not gonna throw up a gate. Um, so, you know, I think a lot of this is gonna depend on, you know, different interest rate environments and really client comfort, you know, as a client, knowing there's no triggers that are necessarily attached to the 25 and 50%, you know, would you be comfortable with us running 25 and 50% or do you wanna see 55?

(31:56):

Do you wanna see 60? So if all of a sudden you're holding 60 to 70%, you know, in a maybe an easing interest rate environment, you know, that will start to impact performance. So, you know, unfortunately it's not, not a yes-no question. Um, but you know, I would expect since all the triggers that are tied to our liquidity are gonna be eliminated, we are gonna hold the appropriate amount of liquidity based on, you know, our underlying client base and the current interest rate, um, and credit environment. All right. I need to slow down some of my answer or shorten some of my answers so I can get to some more of these questions. Um, was there any change to the reporting requirement in the shadow NAV to treasury, um, and government money market funds? I don't think so. Um, I haven't read all the details yet. We're kind of going through that now, um, but I don't think there's gonna be any change to that at all. Um, (Frank) Laurie, (Laurie) one of the, (Frank) Lori, I just want, (Laurie) oh, I'm sorry.

Frank Dotro (32:58):  Sounds fine. I have one question that may not be there, but, you know, we had reform in 2010 and that was however many hundred pages and then 2016 reform is obviously much more significant. And I think that was 850 pages. Yeah, we're working our way back down. So we're now in the 400 range. Um, are we done right? Is is, I think the question on a lot of people's minds is, you know, is this an every six year thing? Should we be primed for the next one or do we have to wait for the next liquidity crisis to figure that out?

Laurie Brignac (33:29):  Yeah, you know, honestly, um, and we can, we can debate it, you know, I think we can consider this done until you get the next Black Swan event, right? Um, we have not been able to test and see how do these mandatory liquidity fees work. I think we have, you know, just even this year, you know, with kind of what was happening in the banking, you know, in the banking industry and things like that, you know, we're always thinking of the next derivative. How is this gonna impact us? What does this mean? You know, is there a negative impact on money funds? You know, it seems like we are dealing with more and more of these black swan events. I, I guess, what do they call 'em, gray swans or something like that. But, you know, we should be done, you know, there isn't anything that says we're gonna re-look at these rules, you know, in three or five years. I think we just have to see how well they actually work. Um, so hopefully we are close to being done.

(34:32):

I do wanna hit this other question too, that came in. Um, do we have a choice to implement either RDM or floating NAV for stable funds? Um, would either be mandatory? Um, so I think some of the things that we're gonna, yes, number one, we do have a choice. Um, one of the things, and I'm gonna be perfectly honest, one of the things I have not been able to find, and I asked our lawyers and we just need to continue to comb through the text, is could you have a product with different share classes? You know, could one float, maybe one have RDM? Because I know when you look at, you know, global portfolios, you've got different currencies and things like that. So, you know, I think that there's still a lot of questions, but the good news is that the SEC absolutely did, um, give the advisors, you know, um, and again, the Board's gonna have to approve this, but we will be working with our intermediaries as to which one could they accommodate.

(35:31):

That would be the one, you know, because again, the intermediaries and how they transact with our underlying clients is gonna be, is gonna be critical. And obviously listening to our clients as to which one they prefer, you know, I would, for us, we've got multiple, you know, um, portfolios, you know, potentially what we could do is have, you know, two, we do have two institutional government, you know, money market funds, maybe one will be more RDM focused, maybe, you know, one will be floating. Um, but again, it's kind of a moot point if we don't have negative rates. And that was kind of the, one of the frustrating parts about this when we were kind of working with the SEC, just asking them questions around negative interest rates. Um, you know, it, it's something that we, we don't have to deal with, you know, and, and we never got to this point, the last two rounds of zero.

(36:29):

So it felt a little bit like by asking for guidance you shot yourself in the foot. So hopefully it's something that we never have to do, but, you know, I would envision if you can't have separate share classes within one fund, you know, potentially having one fund that would lean, you know, one way versus another. So hopefully there would be something for everybody in some opportunities. Um, there is a question here about the liquidity fee. Does the, um, do we keep it or does it get turned over to the SEC? The whole point of the liquidity fee is to protect the remaining shareholders, right? The whole thought is that as redemptions come in, we're going to use our overnight liquidity, which prices at par to fund redemptions. So, you know, if liquidity was still being drained out of the portfolio and we actually had to sell portfolio securities and we may sell 'em at a loss, those losses would get absorbed by the remaining shareholders.

(37:29):

The, the whole thought around a liquidity fee is to continue to have these fees that would help offset, you know, any losses that would be required, um, you know, to raise liquidity to protect the underlying shareholders. This is not anything that the SEC or the advisors get to keep, um, retail prime funds. Would retail prime funds still have the ability to impose fees, um, if needed, even if gates are going away? Yes. The SEC um, does allow for there to be discretionary fees, um, that could be put to work at if needed, um, on other products. And this would be for the retail prime and the, the retail muni funds. Um, so they, they did allow us to have that, um, I guess tool if needed. But thankfully for retail prime, um, and retail tax-exempt funds, you, you generally don't see the type of redemptions or runs, um, where it would necessitate, you know, a fee being required. And Frank, I have done a lot of talking and I'm flipping through and I think I covered off, I think I hit everybody's questions.

Frank Dotro (38:46):  Great. Well, thank you Lori. It was enlightening and there's clearly a lot, uh, we still have to figure out, uh, as this is very early days. Yeah. But I want to thank everyone for joining us today. Uh, we appreciate your time and as things evolve and become more clear, we'll look to share some more information with you. Uh, in the meantime, if there are any questions, feel free to reach out to anyone at Invesco. We look to be a resource for you. Uh, and we'll leave it there. Hope everyone has a wonderful day. Thank you.

Laurie Brignac (39:17):  Thanks so much.