Tuesday, July 27, 2010

Using Leveraged ETFs to Trade during Circuit Breakers

Subtitle: Intraday Correlations between ProShares ETFs and Broad Market Indices

On June 30, 2010, the SEC announced its intention to expand the circuit breaker pilot program to many more stocks and, for the first time, ETFs. Public comments have expressed concern that, when applied to ETFs, circuit breakers may themselves create market disruptions. If a circuit breaker is triggered, whether appropriately or erroneously, for a widely-traded ETF, HFT firms major market participants may pause trading and deprive the market of liquidity when it is most needed. Once an ETF selected for the pilot program triggers a circuit breaker, firms which trade the basket of underlying stocks may also step away for five minutes until trading in the ETF resumes. In such a scenario, the impact on the liquidity of stocks underlying a halted ETF will demonstrate whether the circuit breaker program meets its objectives in practice.

Not all ETFs have been selected for the circuit breaker pilot program. NYSE Euronext compiled a list of 344 ETFs ("piloted ETFs"), as reported by Index Universe, utilizing a volume cutoff:

"NYSE Euronext, the parent company of the New York Stock Exchange, developed the list of 344 ETFs in consultation with other major exchanges and the Financial Industry Regulatory Authority.

"NYSE Euronext winnowed down the universe of U.S. ETFs by excluding products whose average daily trade volume was less than $2 million worth of shares, it said in a press release."

This criteria for selected ETFs produces some interesting and potential trading scenarios. For example, SPY and IVV, two ETF's which track the S&P 500, are included in the proposed expansion of the circuit breaker program. Therefore, if one of these two ETFs triggers a circuit breaker, will the market simply move to trade the other ETF until five minutes passes? What are the odds that both SPY and IVV will simulateously trigger circuit breakers? (This is not a rhetorical question.)

Given the complex trading relationships between an ETF and its underlying stocks, concerns about market disruption resulting from a circuit breaker are difficult to prove in theory and potentially difficult to quantify. A further review of the list of ETFs proposed for the circuit breaker pilot program reveals another interesting scenario: if a broad-market ETF triggers a circuit breaker, can traders utilize leveraged versions of the ETF to continue trading through the duration of the circuit breaker?

To address that possibility, we start with a summary of ETFs which may serve as substitutes (or proxies) for three broad market ETFs: SPY, QQQQ, and IWM.

Those ETFs participating in the circuit breaker pilot program are only unleveraged (long and short) versions of their underlying indices. The obvious choice for trading through the duration of a circuit breaker would be to use a leveraged (long or short) ETF, sponsored by ProShares. The remainder of this analysis studies how effectively these ProShares ETFs followed their stated leverage ratio during 2010 Q2.

First a definition of the term "leverage ratio" as utilized in this analysis. To take an example, the ProShares Ultra S&P 500 (SSO) has a stated objective of going up or down twice as much as the S&P 500 index, on an intraday basis. Hence, the stated target leverage ratio for SSO is +2. Conversely, the stated target leverage ratio for ProShares UltraShort S&P 500 (SDS) is -2 because SDS moves in the opposite direction to the S&P 500. By looking at the returns of leveraged long/short ETFs over 5-minute intervals during 2010 Q2, we compare their returns to the underlying index by utilizing linear regression analysis. These regressions are constrained to have a zero alpha (zero intercept) so that the resulting beta (slope) provides a useful (albeit not perfect) measure of the leverage ratio. Each regression compares a single ETF to its underlying index, ignoring any 5-minute intervals when such ETF did not trade. Otherwise, volume has no impact on the regressions. By constraining the alpha to zero, the following graphs need to display only the slope (termed the "observed leverage ratio").

The closer an ETF trades to its stated target leverage ratio, the better such ETF may serve as a proxy if another related ETF triggers a circuit breaker. How well might various leveraged long/short ETFs of the S&P 500 index serve as proxies to SPY, IVV, or SH? The following graph shows the consistency of the leverage ratio for every trading day furing 2010 Q2.

(For convenient viewing throughout all graphs, those ETFs which will be subject to circuit breakers have markers with yellow centers. For graphs pertaining to the S&P 500, the iShares ETF is excluded so that the higher-volume SPDR ETF is easier to view. On graphs plotting the observed leverage ratio over time, a black line represents the daily standard deviation of 5-minute returns to help compare deviations in the observed leverage ratio to underlying index volatility.)

On a daily basis, the leveraged ETFs appear to trade according to their stated target leverage ratios. As the target level rises to 2x and 3x, the observed leverage ratio for both long and short ETFs exhibits greater variability around the target level. Perhaps the efficiency of instruments used to gain leverage suffers as leverage rises. Liquidity might also play a role. Leveraged ETFs typically have lower trading volume than their corresponding long unleveraged ETFs (discussed in detail further below).

Can one draw the same conclusion by looking at the observed leverage ratio over intraday 5-minute intervals? In this graph, the leverage ratio is computed through a linear regression utilizing all trading days during 2010 Q2 but for a specific 5-minute interval during each trading day.

During certain times of the day, on average, the observed leverage ratio tended to deviate from the stated objective. Most likely (especially between 2:30 and 3:00) these deviations reflected aberrant activity on specific days (e.g. May 6), as opposed to repetitive behavior during most trading days. Interestingly, the interval from 9:30 to 9:34, where 5-minute volatility is highest overall, shows the largest discrepancy in observed leverage ratio. Currently, the SEC does not apply circuit breakers during the beginning and end of regular trading hours (9:30 to 9:45 and 3:45 to 4:00).

Switching from a time-based perspective, the next graph shows the observed leverage ratio according to the return in the underlying index during 5-minute intervals.

(For clarification, the horizontal axis shows return bands, each spanning 0.10%. The return band labelled -0.30% includes any 5-minute intervals when the underlying index dropped by 0.3000% to 0.3999%. The return band labelled +0.30% includes any 5-minute intervals when the underlying index rose by 0.2001 % to 0.3000%. The return band labelled 0.00% includes any 5-minute intervals when the underlying index dropped by -0.0999% to 0.0000%. Furthermore, since the return bands are based on the underlying index, and not the ETFs, circuit breakers might have triggered if they had been in effect for ETFs at that time.)

All ETFs based on the S&P 500 traded close to their stated target leverage ratios as long as the underlying index did not rise or fall more than 0.40% within any 5-minute interval. As the underlying index became more volatile, the observed leverage ratio tended to shrink. Note that as the magnitude of change increases, the number of historical data samples drops, which may in turn reduce the regression quality and increase the standard error of the slope (beta).

In the same manner, we can determine how well various leveraged long/short ETFs of the NASDAQ 100 index served as proxies to QQQQ or PSQ. The following two graphs plot the observed leverage ratio over time, first daily followed by intraday, and roughly follow the patterns seen in the graphs for the S&P 500. For the ProShares triple-leveraged ETFs, SQQQ and TQQQ, the observed leverage ratios deviated from the stated target levels more so than for the corresponding ProShares ETFs tracking the S&P 500 .

According to the return in the NASDAQ 100 during 5-minute intervals, the following graph shows that the observed leverage ratios for the related ETFs tracked their stated target levels most of the time. Only when the Nasdaq 100 index rose or fell by more than 0.40% did the observed leverage ratio begin to decline. In this case, the spike in standard error which we observed for the S&P 500 is not present among the ETFs which track the NASDAQ 100.

Finally, we can determine how well various leveraged long/short ETFs of the Russell 2000 index serve as proxies to IWM or RWM. The following two graphs plot the observed leverage ratio over time, first daily followed by intraday.

In this case, the observed leverage ratio of the ETFs fluctuated even more from their stated objective than for the ETFs which track the NASDAQ 100. Could these fluctuations be the result of lower trading volume in the ETF and its component stocks? Additional analysis further below should address this question.

According to the return in the Russell 2000 during 5-minute intervals, the following graph shows that the observed leverage ratios tracked (and many times exceeded) the stated target levels most of the time. Only when the Russell 2000 index rose or fell by more than 0.50% did the observed leverage ratio decline significantly.

Thus far, the leveraged ETFs corresponding to the S&P 500, NASDAQ 100, and Russell 2000 appear to maintain an observed leverage ratio consistent with expectations, except during sharp price movements. However, brief periods of sharp price movements would be most likely to trigger circuit breakers, outside of erroneous trading activity. Might the participation of unleveraged ETFs in the circuit breaker pilot program prompt a change in how leveraged ETFs behave during extreme price volatility? In other words, can leveraged ETFs attract more volume, and in turn achieve observed leverage ratios consistent with stated levels, if any of their corresponding unleveraged ETFs triggers a circuit breaker?

The following three graphs compare the daily volume of the ETFs listed above (except for IVV). When selecting ETFs to include in the pilot program, the SEC focused on the highest-volume ETFs for the three broad-market indices. In addition, the corresponding unleveraged inverse ETFs had respectable volumes but lower than some of their leveraged counterparts. (Note the log scale for the vertical axis.)

In fact, for all three indices, the double-leveraged ETFs (both long and short) traded with materially higher volumes than their corresponding unleveraged short counterparts. The same conclusion can be drawn from the following three graphs, which plot average intraday volume during 5-minute intervals according to the 5-minute return in the underlying index. (Note that the graph plots average, not total, 5-minute volume because not all ETFs traded during every interval in every trading day of 2010 Q2.)

Once again, the double-leveraged ETFs consistently traded in greater volumes than their unleveraged short counterparts but less than their unleveraged long counterparts. Furthermore, these three graphs exhibit a very consistent "smile" shape, indicating that 5-minute interval volume does increase as 5-minute price movement (positive or negative) increases. While the overall shape is intuitive, the consistency among all ETFs (across different leverage ratios and long vs short) demonstrates the potential for a leveraged ETF to attract more volume should an unleveraged long or short ETF trigger a circuit breaker. However, these graphs do not and cannot prove how the observed leverage ratio of leveraged ETFs might behave during such a market scenario in the future.

In conclusion, the above analysis demonstrates some key aspects of leveraged ETFs which require careful consideration during normal and volatile periods of intraday trading.

1. As intraday (5-minute interval) price volatility of an underlying index increases, the observed leverage ratio drops significantly below stated levels. If an underlying index rises or drops by more then 0.50% in a 5-minute interval, then the leveraged ETFs may not trade at a predictable correlation to the undering index within the same interval.

2. As intraday price volatility of an underlying index increases, the corresponding volume also increases, confirming that ETFs are popular among traders who seek to rapidly gain market exposure or hedge existing positions. Both leveraged and unleveraged ETFs exhibit the same pattern of trading volume, which demonstrates that a leveraged ETF may be a viable proxy for an unleveraged ETF which has triggered its circuit breaker.

3. Both the NYSE and SEC appear to have postponed determining how leveraged ETFs may be included in the circuit breaker program. Most likely, the embedded leverage of such ETFs increases their chance of triggering a circuit breaker at times when other similar ETFs may trade inside their trigger levels. Such a potential scenario is further complicated by past behavior of observed leverage ratios, as shown above. (Currently, the SEC is not granting exemptive relief to ETFs which request to make significant investments in derivatives.)

4. The SEC is already concerned with the performance of leveraged ETFs, specifically due to their daily resets (which should not be pertinent to intraday leverage ratios). Might the exercise of identifying circuit breaker trigger levels create further scrutiny on a product where FINRA states "typically are not suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets"?

Once the proposed ETFs are rolled out into the circuit breaker pilot program, leveraged ETFs will be put to a potentially new test . How might leveraged ETFs behave empirically should a related ETF trigger its circuit breaker?

Friday, July 9, 2010

Are Money Market Funds like CDOs?

A comparison of a money market fund to a collateralized debt obligation ("CDO") or structured investment vehicle ("SIV") may readily seem far-fetched, but given the complexity of risks and evolving regulations, one may appreciate the relevance of their similarities and resulting implications.

Why does such a comparison even matter, and why now? Recent amendments to Rule 17g-5, under the Securities Exchange Act of 1934, seek to improve the integrity of ratings issued by NRSROs (aka rating agencies) for structured finance products. What is a structured finance product under Rule 17g-5? According to the Federal Register (Vol. 74, No. 232):

The Commission intends this provision, which mirrors, in part, the text of Section 15E(i)(1)(B) of the Exchange Act (enacted as part of the Rating Agency Act), to cover the full range of structured finance products, including, but not limited to, securities collateralized by static and actively managed pools of loans or receivables (e.g., commercial and residential mortgages, corporate loans, auto loans, education loans, credit card receivables, and leases), collateralized debt obligations, collateralized loan obligations, collateralized mortgage obligations, structured investment vehicles, synthetic collateralized debt obligations that reference debt securities or indexes, and hybrid collateralized debt obligations.

In brief, a structured finance product includes static or actively managed pools of corporate loans and residential mortgages, among a number of other fixed-income securities and synthetic instruments.

The shortcomings of NRSRO-issued ratings of structured finance products is one of the commonly cited contributors to the Great Recession. However, NRSROs also play an important role in the credit quality of money market funds: Rule 2a-7 under the Investment Company Act of 1940 contains provisions which refer to NRSRO ratings for determining investment eligibility. Over the recent months, the SEC considered whether to allow fund managers to rely on ratings under Rule 2a-7. That debate led to the preservation of references to ratings in the investment process but added the requirement to use multiple NRSROs whenever possible and additional annual NRSRO quality assessments by the managers. According to a Mayer Brown Securitization Update (March 24, 2010):

Money market funds are regulated pursuant to rule 2a-7 under the Investment Company Act. Although recently amended to (among other things) remove some of its references to ratings, rule 2a-7 continues to rely to a substantial degree on ratings from NRSROs in defining minimum credit standards for fund investments. Some important rating standards in the rule are phrased in terms of specified ratings from the “Requisite NRSROs.” Ordinarily, “Requisite NRSROs” means any two NRSROs from a list of at least four that must be designated annually by the fund’s board of directors, but it can mean just one of the designated NRSROs if only one of them maintains a rating of the subject security.

NRSROs expanded their expertise beyond rating individual corporate bonds and structured finance products: they rated investment vehicles which held such rated instruments. Among such investment vehicles, the most often cited examples are CDOs and SIVs. Another less-publicized but more familiar example is the money market fund. How many money market funds do NRSROs rate? Using Standard & Poor's as an indicative NRSRO (throughout the remainder of this analysis), approximately 100 US money market funds were rated representing $283.9 billion of AUM, reported as of March 31, 2010. (The total AUM of US money market funds was approximately $2.8 trillion, according to the ICI as of June 30, 2010.)

The fact that certain types of investment vehicles are rated and invest in rated securities does not mean that they are all similar in credit risk posed to investors or sensitivity to the default risk in underlying investments. According to S&P in their article entitled "CDOs: An Introduction To CDOs And Standard & Poor's Global CDO Ratings" (June 8, 2007), CDOs cannot be deemed similar to mutual funds:

In a mutual fund, all investors share in the risks and rewards of the investments equally. In a CDO, the transaction is structured with different classes of notes, each having a different risk/reward profile. If any of the assets in the underlying asset pool default, the lowest note class (typically referred to as the CDO equity class) will suffer a loss. As losses increase in the asset pool, then the other classes of notes may also be affected.

This perspective differentiates CDOs from mutual funds on the key basis that mutual funds issue one class of security (generally an accurate assumption, with a caveat noted later) versus the multi-tranche liabilities of CDOs. However, this reasoning does not speak to credit and market risks from the underlying portfolio of fixed-income securities. In the same article, S&P further elaborates:

Investors can look at the asset portfolio to get a sense of the companies in the pool, how the companies are rated, and their line of business. Standard & Poor's also provides portfolio benchmarks of each CDO. The benchmarks include: Weighted average rating (WAR): The average rating on the companies in the pool; Weighted average maturity (WAM): The average life of assets in the portfolio; Default measure (DM): The expected annual average default rate of the portfolio; Variability measure (VM): The deviation around the average portfolio default rate; and Rated overcollateralization (ROC): The risk-adjusted collateral available to support a rated tranche.

In summary, S&P assesses the collective risks of underlying securities in a CDO based on their ratings, maturity profile, and expected default rates (with a certain amount of variability). Even if a CDO issues only one class or tranche of debt (much like a money market fund issuing one share class), the last benchmark, Rated Overcollateralization, is still relevant but simpler to analyze than for a multi-tranche structure.

The market-value CDO ("MV-CDO") is one type of CDO which serves as a useful and representative example of a rated investment vehicle. According to a criteria article entitled "CDO Spotlight: Criteria For Rating Market Value CDO Transactions
" (September 15, 2005)
, S&P provides the following definition of a MV-CDO:

Market value CDO transactions involve SPEs designed to purchase and actively manage a diversified pool of financial assets. Structurally, they are similar to cash flow CDOs in that their capital structures consist of a series of debt and equity classes. The primary difference between cash flow CDOs and market value CDOs is the nature of the risk passed from the pool of assets to the investor. As the name suggests, a market value CDOs risk is linked to the market value of the assets within it. The risk in cash flow CDOs is based on the pure credit risk of the assets, measured by the assets' ratings.

In addition to the risks attributed to the generic cash flow CDO, the MV-CDO includes a distinct exposure to fluctuations in the market value of underlying securities.

How does S&P characterize the risks of securities held by money market funds?

In a criteria article entitled "Fixed-Income Funds: Process And Overview" (February 2, 2007), S&P lists the following key risks within money market funds:

A Standard & Poor's Principal Stability fund rating, also known as a money-market fund rating, is a current opinion of a fund's capacity to maintain stable principal or net asset value. When assigning a Principal Stability rating to a fund, we evaluate the creditworthiness of a fund's investments and counterparties, the market price exposure of its investments, sufficiency of the fund's portfolio liquidity, and management's policies and overall ability to maintain the fund's stable net asset value (NAV) by limiting exposure to loss. In our view, funds that seek to maintain a stable NAV should be managed conservatively in regards to average maturity, credit quality, and liquidity and should follow well-defined guidelines and investment policies (such as those specified within SEC Rule 2a-7 guidelines).

In another criteria article entitled "Fixed-Income Funds: Market Price Exposure" (February 5, 2007), S&P further elaborates on key risks to the stable NAV of money market funds:

By far, the most complex part of money market fund analysis is judging a fund's sensitivity to changing market conditions. Absolute stability of net asset value (NAV) is a myth perpetuated by the amortized cost method of pricing securities. All fixed income securities are subject to price fluctuations based on the following: interest rate movements; maturity; liquidity; credit risk or perceived credit risk; and the supply and demand for each type of security. These factors are just as true for money market funds as for longer-term fixed-income mutual funds.

In summary, S&P assesses the collective risks of underlying securities in a money market fund based on their credit risk and credit quality (i.e. ratings), maturity profile, liquidity, and market price exposure. Do these risks sound familiar?

While there are several differences between CDOs and money market funds, once one compares how an NRSRO analyzes the risks of securities in the underlying asset pools, those differences begin to look more nominal and less substantive. Based on the above highlighted words, the risks underlying market-value CDOs and money market funds appear quite similar. Both investment vehicles predominantly, if not exclusively, hold fixed-income securities; hence, their risks should be assessed in a very similar manner.

The following diagram shows the similarities between the underlying securities in CDOs and money market funds.

This diagram classifies the structured investment vehicle (SIV) and CDO as comparable investment vehicles, both issuing multiple classes of debt securities. Several SIVs and CDOs issued short-term (commercial paper) tranches which, when rated A-1+ (or equivalent) by an NRSRO, were considered eligible for investment by money market funds. Interesting to note, those highly-rated short-term tranches of CDO/SIVs were held by some money market funds which were also highly-rated by the same NRSROs (too many examples exist to mention only a few judiciously).

As noted above, S&P stated that the single-class shares of money market funds distinguish themselves from multi-tranche debt securities typically issued by CDOs. Indeed, CDOs issued short-term and long-term debt tranches as well as an equity tranche (deemed the first-loss position). Do money market fund shareholders absorb any and all losses which may result from adverse performance in underlying securities, after deducting for expenses charged by the portfolio manager to act in its capacity? If you ask the shareholders of The Reserve Fund after Lehman Brothers filed for bankruptcy, the answer would be a resounding "yes". If you ask Federated, Charles Schwab, or BlackRock, based on their earnings reports, the answer would probably be "no" only because those firms (and many others) waived asset management fees in order to prevent their money market funds from "breaking the buck". Might such fee waivers be equivalent to a form of contingent capital injected into an otherwise loss-making business? (Posing this question does not seek to undermine the appropriateness of the fee waivers in the first place, rather to point out that capital was injected to avoid a loss to fund shareholders.)

In Comparison B, the equity tranches for CDOs and money market funds are added to Comparison A above.

At this point, one may still disagree with the premise that CDOs and money market funds, while regulated differently and usually sold to different types of investors, share similar types of risks from underlying fixed-income securities. When looking at the recent amendments to Rule 17g-5, this comparison can be extended to include a new dimension. Through Rule 17g-5, the SEC sought to mitigate the effect of conflicts of interest created by the manner in which NRSROs are engaged and compensated. According to the same Mayer Brown publication referenced earlier:

Among other changes, the Commission amended rule 17g-5 to facilitate unsolicited ratings from NSROs that were not hired by issuers, sponsors, or underwriters to rate particular asset-backed securities (ABS) and other structured finance products by enabling these non-hired NRSROs (Accessing NRSROs) to access the same rating-related information as “Hired NRSROs.”.

Do these conflicts of interest, deemed to have compromised the quality of past ratings on structured finance products, have any relevance to money market fund ratings? Building on Comparison B, the scope of Rule 17g-5 is highlighted in yellow in Comparison C.

Money market funds, already impacted by changes to Rule 2a-7 regarding the use of ratings, need to be mindful of potential, yet remote, side-effects of Rule 17g-5. With respect to the unsolicited rating of a structured finance product, Mayer Brown further elaborates:

When a fund relies on ratings from two of its designated NRSROs (which we would expect to occur in the vast majority of cases), no issues should arise from any unsolicited ratings. By definition, a security has the specified ratings from the Requisite NRSROs as long as any two of the designated NRSROs have provided the minimum ratings, regardless of what other ratings other designated NRSROs may have provided, whether on a solicited or unsolicited basis. However, if a fund seeks to satisfy the rating requirement based on just one rating, believing that only one NRSRO has rated a Structured Finance Product that the fund is buying, the fund could find itself unexpectedly holding an ineligible security because, unknown to the fund, another of its designated NRSROs rates the Structured Finance Product on an unsolicited basis. This would not generally require fund to dispose of the affected Structured Finance Product. Also, it should seldom occur, since most Structured Finance Products have two ratings from NRSROs, and the two NRSROs providing those ratings seem likely to be included in a purchasing fund’s designated group.

In summary, if an NRSRO issues an unsolicited rating for a structured finance product which is lower than the rating issued by designated NRSROs utilized by the money market fund portfolio manager, corrective action may be required. The changes to Rule 17g-5 are too recent to empirically assess whether this risk will be a material concern. If an NRSRO issues an unsolicited rating for a specific structured product security which is meaningfully lower than the ratings issued by other NRSROs, would the marketplace question or doubt the validity of the higher rating on the same security? Would the portfolio manager of a money market fund be able to argue against utilizing the lower unsolicited rating?

However, the real key take-away question is:

Should an NRSRO proactively issue an unsolicited rating of a money market fund, especially given any significant differences among NRSRO's in the perception of risks among the underlying securities?

The SEC has clearly targeted structured finance products as vulnerable to "ratings arbitrage". Since money market funds are not categorized as structured finance products (such as CDOs), how are their ratings (e.g. S&P's Principal Stability Fund Rating) protected from the conflicts of interest which prompted the SEC to amend Rule 17g-5?

Currently, a large share of US money market funds (possibly over 90%, based on S&P's coverage compared to ICI's statistics) are not even rated by S&P. Of the US money market funds rated by S&P, their average maturity of underlying securities (33 days as of March 31, 2010) is well under the SEC-mandated maximum of 60 days, indicative of the conservatism among those funds which request and pay to be rated. If a money market fund holds a portfolio which has an average maturity of 55 days, would the fund sponsor be less likely to pay an NRSRO for a rating (due to the higher risk of a potential downgrade should average maturity extend beyond 60 days)? In such a scenario, should an NRSRO issue an unsolicited rating?

After pondering this question, one might want (or not want) to consider an alternative question concerning accounting treatment: If money market funds are similar to CDOs, then should asset managers be required to consolidate money market funds onto their balance sheets under FAS 166/167 aka ASC 860? Under proposed rules, CDO managers already face a material possibility of consolidating their investment vehicles (see FASB Comment Letter Summary).

Additional Notes:

1. The above analysis is not exhaustive but rather seeks to raise awareness, through a concise discussion, of specific sources of potential (yet probably remote) risk in money market funds.

2. In order to comprehensively interpret the excerpts cited above, review the context from which the excerpts originated by clicking on the links to original source documents. Free registration may be required for certain source documents.

3. Certain words in the excerpts above are highlighted in yellow by Fundometry, not the original authors of the excerpts.

4. NRSROs other than S&P may have materially different perceptions of the sources of risk in structured finance products and money market funds.