Money Market Fund

RECENT NEWS
The Times of India  Mar 23  Comment 
Total money market mutual funds fall by $23.26 billion in latest:Total money market mutual funds fall by $23.26 billion in latest week-ICI
MarketWatch  Mar 21  Comment 
Rules meant to prevent runs drove investors to government funds in search of stable NAVs and no gates or redemption fees
Mondo Visione  Mar 6  Comment 
From today on money market funds with a shorter settlement period of T+1 are tradable via Xetra. These products are therefore the first class of securities for which transactions are settled on the trading day following order execution. All other...
Mondo Visione  Feb 14  Comment 
The OFR posted today a blog by Deputy Director for Research and Analysis Stacey Schreft, entitled, “Money Market Funds' Floating NAVs Stay in Narrow Range for Now.” In the blog the deputy director says, money market funds long sold shares...
New York Times  Jan 13  Comment 
As interest rates rise, money market funds, certificates of deposit and short-term bonds are delivering higher yields — but investors should be choosy.
Mondo Visione  Jan 12  Comment 
The Securities and Exchange Commission today announced its Office of Compliance Inspections and Examinations’ (OCIE) 2017 priorities.   Areas of focus include electronic investment advice, money market funds, and financial exploitation of...
Wall Street Journal  Dec 16  Comment 
The European Union is set to impose restrictions on money funds, in a move that follows U.S. regulation that caused massive outflows from some funds there.
Motley Fool  Nov 21  Comment 
An obscure rule change affecting money market funds means that companies are paying higher rates to borrow.
Mondo Visione  Nov 16  Comment 
On 14 November 2016, the presidency reached provisional agreement with representatives of the European Parliament on a draft regulation on money market funds (MMFs), aimed at making such products more robust.  The draft regulation is...
Financial Times  Nov 4  Comment 
Investors turn to money market funds as nerves fray




 
TOP CONTRIBUTORS

A money market fund is a type of mutual fund that is required to invest in low-risk securities. These funds have relatively low risks compared to other mutual funds and pay dividends that generally reflect short-term interest rates.

Money market funds typically invest in government securities, certificates of deposit, commercial paper of companies, or other highly liquid and low-risk securities.

Importance to the Repo market

Money market funds play a critical role in the repo market. Repurchase agreements, or repos, are short-term agreements in which a borrower "sells" a security, but agrees to purchase it back at a specified price and date (usually the next morning), in return for a small interest payment. Securities firms such as Investment Banks and brokerages are required to have a certain amount of cash overnight - by "selling" securities to money market funds just for the night, banks can meet their liquidity obligations.

In effect, Repos are secured loans since the lender (in this case the money market fund) gets the security as collateral for the cash being lent out.

Net Asset Value and Breaking the Buck

Money market funds attempt to keep their net asset value (NAV) at a constant $1.00 per share (the price the investor paid) – only the yield (interest) goes up and down. But a money market’s per share NAV may fall below $1.00 if the investments perform poorly - a situation known as "breaking the buck". This has only occured twice - most recently, on September 16 2008, the Reserve Primary Fund "broke the buck" after writing off a large amount of Lehman Brothers (LEH) commercial paper.

Unlike a money market deposit account at a bank, money market funds have traditionally not been federally insured. On September 19, 2008, as a result of the lehman bankruptcy and the Reserve Primary Fund breaking the buck, the U.S. Treasury Department established a temporary guarantee program for the U.S. money market mutual fund industry.

Statistics

As of December 11, 2008, retail money market funds had $1.282 trillion in Assets Under Management (AUM), of which 77% was in tax-exempt funds. There is an additional $2.5 trillion in institutional money market funds, of which the overwhelming majority - 93% - is tax-exempt.[1]

References

  1. Investment Company Institute, "Money Market Mutual Funds", Dec 11th, 2008.
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