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Finally: New SEC rules for money-market funds

edited July 2014 in Fund Discussions
The following is an Associated Press news release quoted from the Washington Post.
(It is the second article down on the page.)

New SEC rules for money-market funds

"Regulators voted by a narrow margin to end a longtime staple of the investment industry — the fixed $1 share price for ­money-market mutual funds — at least for some money funds used by big investors.

The idea is to minimize the risk of a mass withdrawal from the funds during a financial panic.

The Securities and Exchange Commission also is letting all money funds block withdrawals when their assets fall below certain levels or impose fees for withdrawals.

The rules were adopted Wednesday by a 3-to-2 vote, culminating several years of regulatory haggling and false starts. They were opposed by one Democratic and one Republican commissioner.

The floating-price requirement applies only to prime institutional funds, which are considered riskier. They represent about a third of money-market funds, according to the SEC.

A run on a money-market fund during the financial crisis showed how risky the funds could be. The Lehman Brothers collapse in fall 2008 triggered the failure of the Reserve Primary Fund, one of the biggest money-market funds, which held Lehman debt. The Reserve Primary Fund lost so much money that it “broke the buck,” as its value fell to 97 cents a share."

— Associated Press

Comments

  • It strikes me that the only thing accomplished is that these money markets become places to store money for short periods of time. People will be discouraged from using money markets for long term storage like money markets are savings accounts. I guess I'm too dumb to see the difference in values falling to 97 cents a share and share prices going down to from 100 to 97 cents a share.

    Also, should they still call them money markets? Doesn't that just confuse Joe MainStreet? Isn't this a new investment vehicle distinct from non-prime institutional money markets which also are called money markets and remain the same as people are accustomed to? The psychology of the "investment" is entirely changed when people can't continue the savings account type analogies with language of principle plus permanent interest ownership.
  • Anna, do you really think that regulators and politicians care about Joe Main Street?
  • edited July 2014
    Well, of course not. Just wondering about the language. Of course I wouldn't begin to guess how many Joe MainStreets think all these things are FDIC insured. Perhaps these could be called Floating Money Boxes or something.
  • In the event of a nasty credit crunch or related that is going to cause severe, negative economic dynamics; the final over-riding circumstance for any and all monies, be they in financial institutions such as banks, credit unions or money market type funds would the overriding mandates of presidentical directives; which would include any neccessary methods to limit and/or control cash flows as determined for the overall health of institutions and others as needed.
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