Comments on: The SEC gets closer to regulating money-market funds http://blogs.reuters.com/felix-salmon/2012/02/07/the-sec-gets-closer-to-regulating-money-market-funds/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: realist50 http://blogs.reuters.com/felix-salmon/2012/02/07/the-sec-gets-closer-to-regulating-money-market-funds/comment-page-1/#comment-35714 Wed, 08 Feb 2012 06:20:08 +0000 http://blogs.reuters.com/felix-salmon/?p=12108#comment-35714 y2kurtus – and don’t forget that I also have to pay a fee to the FDIC for deposit insurance

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By: Abe.Froman http://blogs.reuters.com/felix-salmon/2012/02/07/the-sec-gets-closer-to-regulating-money-market-funds/comment-page-1/#comment-35713 Wed, 08 Feb 2012 06:12:38 +0000 http://blogs.reuters.com/felix-salmon/?p=12108#comment-35713 If Money Markets are banks and can’t survive being treated like banks, then get rid of them and go back to banks. No point in privatizing profits and socializing losses if these things blow up again.

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By: y2kurtus http://blogs.reuters.com/felix-salmon/2012/02/07/the-sec-gets-closer-to-regulating-money-market-funds/comment-page-1/#comment-35712 Wed, 08 Feb 2012 04:01:32 +0000 http://blogs.reuters.com/felix-salmon/?p=12108#comment-35712 No US regulator wants money market funds to exist in the size and scale that they do currently. Most money market funds are sponsored by the large commercial banks. These bank managed funds have already shrunk sharply because when the FDIC told banks to stop subsudizing them with management fee consessions the yields dropped all the way to zero and banks are still breaking even or losing money.

The problem is that the banks can’t handle the deposits. There is nothing to do with the money. 91 day t-bills also yield zero so if I take a billion dollars in at zero % lend it out to the goverment at 0% then I made no money and tied up 100 million worth of my capital cushion.

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By: DougT http://blogs.reuters.com/felix-salmon/2012/02/07/the-sec-gets-closer-to-regulating-money-market-funds/comment-page-1/#comment-35709 Wed, 08 Feb 2012 02:04:33 +0000 http://blogs.reuters.com/felix-salmon/?p=12108#comment-35709 This is going to kill the industry. The rules amount to closing the barn door after the horse has left the stable.

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By: clumsymohel http://blogs.reuters.com/felix-salmon/2012/02/07/the-sec-gets-closer-to-regulating-money-market-funds/comment-page-1/#comment-35703 Tue, 07 Feb 2012 22:22:42 +0000 http://blogs.reuters.com/felix-salmon/?p=12108#comment-35703 Everyone got 99% recovery because the government served as a backstop. You can’t pretend like the market would have survived without an implicit government guarantee.

There has to be some kind of middle ground for the floating NAV idea. It would create an operational, accounting, and tax nightmare for many and may drive them out of the MMF market if all funds were just forced to float a NAV tomorrow. Something along the lines of striking a real NAV on a daily basis and keeping the per share value at $1 until your real NAV falls below a set threshold at which point you are forced to float, and perhaps exempting funds invested in say only U.S. government debt.

As to the 5% lockup, that’s crazy. Why would I continue to keep my $ there when I could put it in something that’s actually liquid?

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By: BRJohansson http://blogs.reuters.com/felix-salmon/2012/02/07/the-sec-gets-closer-to-regulating-money-market-funds/comment-page-1/#comment-35701 Tue, 07 Feb 2012 21:09:09 +0000 http://blogs.reuters.com/felix-salmon/?p=12108#comment-35701 The idea that Money Market funds grew out an arbitrage play is said so often that it’s just assumed to be true. I highly recommend reading Zoltan Pozsar’ IMF paper “Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System”. The paper looks at the rise of the “shadow Banking” system from a demand perspective. It is a good read and a gives some needed perspective to the debate on Money Market fund regulation.

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By: FifthDecade http://blogs.reuters.com/felix-salmon/2012/02/07/the-sec-gets-closer-to-regulating-money-market-funds/comment-page-1/#comment-35698 Tue, 07 Feb 2012 19:12:54 +0000 http://blogs.reuters.com/felix-salmon/?p=12108#comment-35698 Let’s face it, many of these funds exist solely to provide Financial Advisors with a way to avoid cashing in a client’s mutual fund and having the money lose his or her ‘control\'; similarly for pension funds and insurance companies. If the client moves the money to his bank account, you can bet the bank will want to get their hands on the money, meaning no reinvestment opportunity for advisor, insurance company, or pension fund.

Sure, there are other purposes too, but as you say if they carry risk they really should be paying more interest to pay for it. Whenever I’ve compared them with ordinary cash accounts, the cash accounts usually have better interest rates, so I can’t see any great attraction in recommending them to my clients.

Of course, use of a floating NAV will pretty much kill the class as an ‘investment’ vehicle, while forcing capital holding will make them uneconomic. Perhaps it is about time they were sorted out?

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By: RogerNegotiator http://blogs.reuters.com/felix-salmon/2012/02/07/the-sec-gets-closer-to-regulating-money-market-funds/comment-page-1/#comment-35697 Tue, 07 Feb 2012 18:42:08 +0000 http://blogs.reuters.com/felix-salmon/?p=12108#comment-35697 During the meltdown only one fund broke the buck — the riskiest, highest-yielding fund — and everyone got 99% recovery. Even if it were a good idea to add regulations to the entire industry as a result, surely the SEC can focus on other priorities (quite a few come to mind) until the ultra-low rate era is over. Moving to impose costs and decrease yields on a product that is paying 0.1% interest is probably a decision to put a lot of funds out of business.

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By: realist50 http://blogs.reuters.com/felix-salmon/2012/02/07/the-sec-gets-closer-to-regulating-money-market-funds/comment-page-1/#comment-35694 Tue, 07 Feb 2012 17:04:21 +0000 http://blogs.reuters.com/felix-salmon/?p=12108#comment-35694 Allowing a floating NAV is a simple fix that resolves the problem. The fixed $1 redemption price is at the heart of why there was/can be a run on money market funds. Without that, a money market fund is just bond fund with short-term, highly-rated assets. Assets that are extremely different from the assets that a bank holds, by the way.

Let’s also provide some context for the crisis of the Reserve Primary Fund and its eventual outcome. Shareholders of that fund have received over 99% of their money – http://en.wikipedia.org/wiki/Reserve_Pri mary_Fund. Even at the height of the panicked flight from money market funds, the real concern wasn’t that the holdings of funds would take massive losses. It was that a small, sub-5% loss of principal for the fund would turn into a huge loss for the last holder out because of the fixed $1 redemption price for holders who redeemed earlier. Floating NAV solves that problem.

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By: alea http://blogs.reuters.com/felix-salmon/2012/02/07/the-sec-gets-closer-to-regulating-money-market-funds/comment-page-1/#comment-35693 Tue, 07 Feb 2012 16:24:12 +0000 http://blogs.reuters.com/felix-salmon/?p=12108#comment-35693 “At heart, as they exist today, MMFs are banks.”
Yes, and they operate without capital. Whether the SEC would be the right regulator is debatable. (Remember the SEC’s Consolidated Supervised Entities: Bear Stearns, Lehman et al….)

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