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Barry Barnitz
Librarian
Joined: 19 Feb 2007
Posts: 1445
Location: Virginia Beach
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 Posted: Wed Jan 27, 2010 1:37 pm Post subject: SEC adopts new money market fund regulations |
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Hi:
The SEC has adopted the following changes to money market fund regulations:
Reuters
| Quote: | | The Securities and Exchange Commission on Wednesday voted to bolster the funds' liquidity, limit their riskier investments and to show investors that the funds may not always maintain a stable $1 share value. |
The provisions include:
1. Funds must hold a minimum 10% of assets in liquid cash or treasury securities.
2. The average maturity of the debt a fund can hold is reduced from 90 days to 60 days.
3. A net asset value or value of each share of a money fund -- would be disclosed on a 60-day lag.
Additional links:
SEC Releases Statement on Money Market Fund Reform, Hosts Webcast
SEC Webcast -soon to be archived
regards,
_________________
blb
December Birthday Celebration: Ludwig van Beethoven |
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Ariel
Joined: 10 Mar 2007
Posts: 1361
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| Posted: Wed Jan 27, 2010 1:44 pm Post subject: Re: SEC adopts new money market fund regulations |
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| Barry Barnitz wrote: | The provisions include:
1. Funds must hold a minimum 10% of assets in liquid cash or treasury securities.
2. The average maturity of the debt a fund can hold is reduced from 90 days to 60 days.
3. A net asset value or value of each share of a money fund -- would be disclosed on a 60-day lag.
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Item 3 is very interesting. It seems to suggest the SEC will allow MM funds to "break the buck" without reporting that fact to investors until some 60 days later. Is my understanding correct?
I guess that provision is designed to avoid a run on MM funds by allowing them time to liquidate and, hopefully, recover before their problems are publicly discovered.
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Do what you will, the capital is at hazard ... - Justice Samuel Putnam (1830), as quoted by John Bogle (1994) |
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kb0fhp
Joined: 26 May 2008
Posts: 893
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| Posted: Wed Jan 27, 2010 1:52 pm Post subject: |
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This sounds like double-speak. The Reuter's article said:
| Quote: | | bolster the funds' liquidity, limit their riskier investments and to show investors that the funds may not always maintain a stable $1 share value. |
The provisions of holding 10% cash; reducing maturity of the debts; and not disclosing "breaking the buck" for 60 days, does not seem to be protecting the Mark, i.e., "the consumer" but protecting the very industry it should be regulating. |
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Tramper Al
Joined: 18 Oct 2007
Posts: 3109
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| Posted: Wed Jan 27, 2010 1:57 pm Post subject: |
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| Yes, I am thoroughly confused about #3. I mean, you can still withdraw at $1.00 NAV as long as the NAV is $1.00, correct? So the day that you see the NAV is $0.9999, that actually reflects the one day performance from 2 months prior? Or does it mean that 60 days worth of sub-$1 NAV losses can be suddenly posted overnight? |
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mas
Joined: 20 Feb 2007
Posts: 1258
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| Posted: Wed Jan 27, 2010 2:33 pm Post subject: Re: SEC adopts new money market fund regulations |
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| Ariel wrote: | | Barry Barnitz wrote: | The provisions include:
1. Funds must hold a minimum 10% of assets in liquid cash or treasury securities.
2. The average maturity of the debt a fund can hold is reduced from 90 days to 60 days.
3. A net asset value or value of each share of a money fund -- would be disclosed on a 60-day lag.
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Item 3 is very interesting. It seems to suggest the SEC will allow MM funds to "break the buck" without reporting that fact to investors until some 60 days later. Is my understanding correct? |
Believe it or not, I believe the SEC already allows this. And it is never disclosed. From the Reuters article:
| Quote: | | Under typical industry practices, money market funds offer shares at one dollar, even if the true value of a fund's assets are a few tenths of a cent above or below a dollar. |
I wasn't able to totally decipher the current regulations (rule 2a-7), but I believe that the "Amortized Cost Method" and "Penny-Rounding Method" allow the fund to ignore up to half a cent of losses and completely ignore the market value of some securities (assuming that they will eventually mature at a certain value). The new value reported at a 60 day lag, would presumably not allow either of those? |
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dumbmoney
Joined: 16 Mar 2008
Posts: 1558
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| Posted: Wed Jan 27, 2010 4:08 pm Post subject: |
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The NAV of a money market fund is always exactly $1, regardless of small fluctuations in the market value of the fund holdings. The new disclosure requirement doesn't change that.
From an investor point of view, the only change is that money market funds will yield slightly less.
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I am pleased to report that the invisible forces of destruction have been unmasked, marking a turning point chapter when the fraudulent and speculative winds are cast into the inferno of extinction. |
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Barry Barnitz
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Joined: 19 Feb 2007
Posts: 1445
Location: Virginia Beach
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stratton
Joined: 04 Mar 2007
Posts: 7905
Location: Puget Sound
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| Posted: Wed Jan 27, 2010 11:03 pm Post subject: |
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The reason banks don't like structural regulations is they can't game the system or "capture" the regulators. By "capture" I mean a regulator gets a job later in the financial industry or as a lobbyist.
Paul |
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INDUBITABLY
Joined: 26 Oct 2007
Posts: 257
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| Posted: Wed Jan 27, 2010 11:13 pm Post subject: |
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The most important effect of today's vote, IMO, hasn't been mentioned yet. According to Zero Hedge, money market funds may now legally suspend all redemptions (Link to the Federal Register, see page 29, final paragraph).
While I think that, overall, allowing an orderly wind-down of failing money market funds should benefit investors by assuring an equitable distribution of losses, I certainly wouldn't want to need to draw on an emergency fund whose redemptions are suddenly no longer being honored.
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"Ah ha! Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor!" - Dr. Zoidberg |
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grabiner
Joined: 21 Feb 2007
Posts: 3882
Location: Columbia, MD
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| Posted: Thu Jan 28, 2010 11:11 pm Post subject: |
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| INDUBITABLY wrote: | The most important effect of today's vote, IMO, hasn't been mentioned yet. According to Zero Hedge, money market funds may now legally suspend all redemptions (Link to the Federal Register, see page 29, final paragraph).
While I think that, overall, allowing an orderly wind-down of failing money market funds should benefit investors by assuring an equitable distribution of losses, I certainly wouldn't want to need to draw on an emergency fund whose redemptions are suddenly no longer being honored. |
And what happens if you pay a bill using a check and the money-market fund suspends redemptions after you write the check but before it clears? (This can't happen with bank checks as long as the account is under the FDIC insurance limit.)
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stratton
Joined: 04 Mar 2007
Posts: 7905
Location: Puget Sound
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| Posted: Fri Jan 29, 2010 3:39 am Post subject: |
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Money Funds' New Rules Could Mean Lower Payout
| Quote: | With memories still raw from the 2008 meltdown of Reserve Primary Fund, the Securities and Exchange Commission released rules on Wednesday that require funds to hold more liquid and higher-quality assets and disclose the value of their assets per share more frequently.
The trade-off: These safeguards also will put pressure on yields that are already near zero. The changes likely will reduce yields by about 0.10 percentage point, said Pete Crane |
Paul |
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Rose21
Joined: 27 Jul 2007
Posts: 518
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| Posted: Fri Jan 29, 2010 10:00 am Post subject: |
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As I understand it, redemptions can now be suspended immediately upon a vote of the fund's board of directors, without prior approval of the SEC. I gather this means that MM assets could be frozen overnight, without any warning. This ought to scare a few folks into treasuries.
Question: How might the rather unusual ownership structure of Vanguard's funds affect the exercise of this authority? |
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Tramper Al
Joined: 18 Oct 2007
Posts: 3109
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| Posted: Fri Jan 29, 2010 10:19 am Post subject: |
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| stratton wrote: | Money Funds' New Rules Could Mean Lower Payout
| Quote: | With memories still raw from the 2008 meltdown of Reserve Primary Fund, the Securities and Exchange Commission released rules on Wednesday that require funds to hold more liquid and higher-quality assets and disclose the value of their assets per share more frequently.
The trade-off: These safeguards also will put pressure on yields that are already near zero. The changes likely will reduce yields by about 0.10 percentage point, said Pete Crane |
Paul |
Of course, there are many many MMFs whose current yields would go soundly into negative territory if reduced by a mere 10 basis points. |
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mf15
Joined: 08 Oct 2008
Posts: 12
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| Posted: Fri Jan 29, 2010 12:31 pm Post subject: |
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My problem with MMF's is that they may now become illiquid at a moments notice or without notice. At Fido if I redeem a stock, or a mutal fund the cash is automatically swept into Fidelity cash reserve. If they happen to halt redemptions for any reason,you would not be able to transfer money electronically to your none Fido somewhat safe bank FDIC insured account.
How do you circumvent this, spread the money around to other brokerage accounts. But if there is another black swan event they all can halt their redemptions.
Old Mike |
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mcmd
Joined: 20 Mar 2008
Posts: 182
Location: The Wilds of Jersey
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| Posted: Wed Feb 03, 2010 2:55 pm Post subject: |
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| INDUBITABLY wrote: | The most important effect of today's vote, IMO, hasn't been mentioned yet. According to Zero Hedge, money market funds may now legally suspend all redemptions (Link to the Federal Register, see page 29, final paragraph).
While I think that, overall, allowing an orderly wind-down of failing money market funds should benefit investors by assuring an equitable distribution of losses, I certainly wouldn't want to need to draw on an emergency fund whose redemptions are suddenly no longer being honored. |
The ZH and FR links were very informative. It now seems certain that the next global liquidity event will impact investors negatively.
From the SEC press release at http://www.sec.gov/news/press/2010/2010-14.htm :
| Quote: | Improving Money Market Fund Operations
Processing of Transactions: The new rules require money market funds and their administrators to be able to process purchases and redemptions electronically at a price other than $1.00 per share. This requirement facilitates share redemptions if a fund were to break the buck.
Suspension of Redemptions: The new rules permit a money market fund's board of directors to suspend redemptions if the fund is about to break the buck and decides to liquidate the fund (currently the board must request an order from the SEC to suspend redemptions). In the event of a threatened run on the fund, this allows for an orderly liquidation of the portfolio. The fund is now required to notify the Commission prior to relying on this rule. |
The underlining above is mine. Personally, I find these new regulations add risks not originally contemplated and untenable. MMF investors should be guided accordingly.
_________________
Best regards,
Marc DiGiorgio, CIC, CRM, CSRM, AU, ARM, ARM-E, ARM-P, AIS
Please note: NO duty is owed to the reader. Comments are for educational and general informational use only. |
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nisiprius
Joined: 26 Jul 2007
Posts: 9264
Location: North America; Western Hemisphere; the Earth; the Solar System; the Universe; the Mind of God
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| Posted: Wed Feb 03, 2010 7:45 pm Post subject: |
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I'm baffled as to why anyone is using a money market fund right now, anyway. People with so much cash that FDIC insurance protects only a negligible portion of it, so they are directly balancing bank failure risk against money market failure risk?
Vanguard Prime Money Market, if I'm reading this silly web page correctly, earned "0.00%" year-to-date, and 0.38% over the previous twelve months.
My local bank's Reward Checking deal earns 2.76% only up to $25,000 but it earns 0.5% above that. And it's FDIC insured. And even if I screw up and don't meet all their requirements, it still earns 0.15% which is still more than the money market fund! And no nonsense about the board voting to suspect redemptions.
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Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. |
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dumbmoney
Joined: 16 Mar 2008
Posts: 1558
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| Posted: Wed Feb 03, 2010 9:39 pm Post subject: |
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| nisiprius wrote: | I'm baffled as to why anyone is using a money market fund right now, anyway. People with so much cash that FDIC insurance protects only a negligible portion of it, so they are directly balancing bank failure risk against money market failure risk?
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Money has been flowing out of money market funds.
How much are safe, too-big-to-fail banks like JP Morgan paying? I assume not much.
_________________
I am pleased to report that the invisible forces of destruction have been unmasked, marking a turning point chapter when the fraudulent and speculative winds are cast into the inferno of extinction. |
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