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Thread: major changes to Money Market Accounts approved by SEC

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    Default major changes to Money Market Accounts approved by SEC

    from

    (snip)regulation will be implemented to enforce that "money market fund managers will have the option to 'suspend redemptions to allow for the orderly liquidation of fund assets" or in other words implement redemption "gates." The logic: spook participants in the $2.6 trillion money market industry with the prospect of being gated (i.e., having no access to ones funds) and force them to reallocate funds elsewhere.

    Moments ago the gates arrived, when following a close 3-2 vote, the SEC adopted new rules designed to curb the risk of investor runs on money market funds, capping the end of a years-long heated debate between regulators and the industry dating to the financial crisis according to Reuters.

    Among the changes, funds will have to switch to a floating share price instead of the current $1/share (hence the term breaking the buck). But the key part: "The SEC's rule will require prime money market funds to move from a stable $1 per share net asset value, to a floating NAV. It also will let fund boards lower redemption "gates" and [ impose - sic ] fees in times of market stress."(snip)


    This is potentially significant for dancers and camgirls who have brokerage accounts ... because the vast majority of brokerages also use a money market account as their 'cash interface'. Under these new SEC regulations, in times of market stress, your broker can now potentially impose daily transfer limits and/or new fees if you attempt to sell off a stock or bond and quickly access the cash proceeds. The broker can execute the stock or bond sale, with the proceeds of that sale being immediately 'swept' into your linked money market account. However, if you attempt to remove money from that linked money market account, via say a transfer back to your local bank, your broker can now impose daily transaction limits and/or stiff new 'fees' for wanting to remove your own money at an 'inconvenient' time.

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    Default Re: major changes to Money Market Accounts approved by SEC

    So should we not be using money market accounts to keep savings in?

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    Default Re: major changes to Money Market Accounts approved by SEC

    ^^^ technically speaking, bank and credit union accounts were already potentially subject to withdrawl restrictions if the bank or credit union were to fall into distress, as well as the result of bank policy ( which was recently done by Chase and HSBC ) . Money market accounts had been free of such withdrawl restrictions until these new SEC regulations were approved. Thus, technically speaking, money market accounts now carry the same withdrawl limits risk that bank and credit union accounts already did.

    I guess that the larger point is that, with this latest SEC change, there is now no US financial institution where an American saver / investor can park their 'cash' that carries an absolute guarantee that 100% of that parked 'cash' can be immediately withdrawn on demand.

    Additionally, the other issue involved in the recent SEC ruling is that money market funds must now officially operate in a way that accurately reflects what they are actually comprised of - which is short term bonds, notes, bills etc. issued by financial institutions and corporations rather than dollars. As such, the SEC has ruled that money market funds must now operate with a variable Net Asset Value, as opposed to a pseudo 1.00 per share valuation and pseudo interest rate ( dividend payment ) as had previously been the case.

    While never specifically 'protected' against this happening, operators of money market funds have traditionally gone to extreme lengths to avoid 'breaking the buck' i.e. allowing the price per share of their money market fund to fall below 1.00. The new SEC ruling, however, makes future declines in the price per share of money market funds easier. In contrast, banks and credit union accounts actually contain dollars so there isn't any similar risk regarding loss of 'principal value'.

    However, in the way of 'full disclosure', that's not to say that bank deposits are unconditionally protected from loss.

    (snip)Thanks to Dodd- Frank, derivatives suddenly have “super-priority” status in bankruptcy. The Bank for International Settlements quoted global OTC derivatives at $632 trillion as of December 2012. Naked Capitalism states that $230 trillion in worthless derivatives are on the books of US banks. That means that bad bank bets on derivatives will be paid-off first before you get your savings cash. If there's actually any cash left once you get to the counter. Normally in a capital liquidation structure, bond holders are supposed to be wiped out before deposits are touched. Under these new “bail-in” mandates, the governments have reordered your bank's exposure, making derivatives and other high risk ventures more highly protected than bank depositor's savings (snip)

    To be clear, under virtually any situation that can be imagined, US money market funds are not going to 'break the buck', and US bank depositors are not going to see their deposits 'written down' or involuntarily converted to 'equity' ( stock shares etc. ) in the distressed bank ( as Dodd-Frank now permits ). But unimagined does not equal impossible.

    Personally speaking, the end result of this latest SEC ruling - in conjunction with historically low interest rates being paid on bank savings accounts and money market accounts - is that I'm starting to keep more cash in my home safe !!!
    Last edited by Melonie; 07-27-2014 at 05:13 AM.

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    Default Re: major changes to Money Market Accounts approved by SEC

    The one thing i would point out........ money market funds and money market savings accounts are two different things entirely...

    "Money market funds are mutual funds and not bank accounts and are not normally insured by any government agency like the FDIC.... money market deposit accounts at chartered financial institutions are FDIC (or NCUA at credit unions) insured." http://www.boston.com/business/perso...market_fu.html

    Money market funds contain mutal funds and money market savings accouts are deposit accounts like any other savings account.
    The article posted is talking about money market funds that include mutal funds, stocks, or bonds.

    Money market savings accounts already have withdrawal restrictions, as do all other savings accounts, under banking regulation D. The max amount of withdrawals is 6 per month or billing cycle. After that there is a fee. Each bank can set their own withdrawal limit ie they may only allow 3 before a fee.
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    Default Re: major changes to Money Market Accounts approved by SEC

    ^^^ yes if it wasn't abundantly clear my original post referred to money market funds operated by brokers / investment houses.

    Indeed money market saving accounts at banks and credit unions are subject to the same potential restrictions on access to depositor money in times of 'distress' that regular savings accounts at banks and credit unions are. If the bank or credit union winds up going bankrupt, access to depositor money ( in either a money market savings account or a regular savings account ) could be denied altogether for some period of time. Indeed the FDIC and NCUA do guarantee that depositors will receive their money back ... eventually. However, given the fact that the FDIC and NCUA insurance funds are both 'flat broke' as the result of payouts during the 2008-9 'distress', actual insured depositor payouts could potentially take months or even years. Obviously, the probability of that doomsday scenario actually happening is negligible ... but it is not zero !
    Last edited by Melonie; 07-28-2014 at 02:24 PM.

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    Default Re: major changes to Money Market Accounts approved by SEC

    Quote Originally Posted by Vamp View Post
    The one thing i would point out........ money market funds and money market savings accounts are two different things entirely...

    "Money market funds are mutual funds and not bank accounts and are not normally insured by any government agency like the FDIC.... money market deposit accounts at chartered financial institutions are FDIC (or NCUA at credit unions) insured." http://www.boston.com/business/perso...market_fu.html


    Money market funds contain mutal funds and money market savings accouts are deposit accounts like any other savings account.
    The article posted is talking about money market funds that include mutal funds, stocks, or bonds.

    Money market savings accounts already have withdrawal restrictions, as do all other savings accounts, under banking regulation D. The max amount of withdrawals is 6 per month or billing cycle. After that there is a fee. Each bank can set their own withdrawal limit ie they may only allow 3 before a fee.
    In addition to the distinctions pointed out by Vamp, the monthly (or quarterly) statement format differs between the 2 in the following ways:

    Money Marketr Savings Accounts (MMSA) will have statements expressed in dollar ammounts only.

    Money Market Funds (MMF) will state the share price (hopefully remaining constant $1 per share), number of shares held, and total $ value of the account.

    I surmise that latest events opens the door for the greater possibility of "breaking the buck" in MMF's. ( the share price dropping below $1/share)
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    Default Re: major changes to Money Market Accounts approved by SEC

    [quote]I surmise that latest events opens the door for the greater possibility of "breaking the buck" in MMF's. ( the share price dropping below $1/share) /quote]

    Actually, it's likely to result in a slowly increasing NAV number i.e. 1.01 at the end of this year, 1.02 at the end of next year etc. and a discontinuation of pseudo-interest 'dividend' payments. Thus a few years from now, if the NAV drops from 1.03 to 1.02 the loss won't be recognized as 'breaking the buck' even though from a de-facto standpoint that will be precisely what will occur.

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