Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Money Market Fund changes coming in 2016
Old 03-26-2015, 09:28 AM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,459
Money Market Fund changes coming in 2016

Recently Fidelity has been posting some communications regarding changes coming to their money market fund line up to comply with new SEC rules that are coming in Oct 2016.

The gist is: certain funds will not have a stable $1 NAV, but rather be allowed to float to 4 decimal places. This is limited to institutional money market funds. Retail money market funds will not float the NAV, but will be allowed to impose liquidity restrictions - i.e. under certain circumstances they can impose early redemption fees and even suspend redemptions for up to 10 days.

If a money market fund uses only US treasuries or other US govt debt, then there are no liquidity restrictions, and the money market fund behaves like they do now.

Why is this happening? The financial crisis in 2008 revealed that money market funds could have serious liquidity issues and weren't nearly as "safe" as many investors assumed. This reform is a way to explicitly address those issues.

This year Fidelity is making some sweeping changes to comply with these rules. For example, Fidelity Cash Reserves will become a Fidelity government money market instead. Various merges, proxies, etc. are in the works this year to make all this happen. Other brokerages must have a migration plan they are starting to implement.

Here are some related Fidelity docs:
__________________

__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 03-26-2015, 09:54 AM   #2
Full time employment: Posting here.
gcgang's Avatar
 
Join Date: Sep 2012
Posts: 925
Money market fund? they still have those? Uh, get back to me when the rates get back to 5%.


Sent from my iPad using Early Retirement Forum
__________________

__________________
In theory, there's no difference between theory and practice. In practice, there is. YB
gcgang is offline   Reply With Quote
Old 03-26-2015, 10:09 AM   #3
Thinks s/he gets paid by the post
imoldernu's Avatar
 
Join Date: Jul 2012
Location: Peru
Posts: 4,616
Not sure I understand this...

As I read it, sounds as if the four decimal points versus the whole dollar will make values more transparent, and limit high leverage speculator manipulation of the market, providing more safety to the funds.
__________________
imoldernu is offline   Reply With Quote
Old 03-26-2015, 10:17 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
calmloki's Avatar
 
Join Date: Jan 2007
Location: Independence
Posts: 5,459
Quote:
Originally Posted by audreyh1 View Post
.... Retail money market funds will not float the NAV, but will be allowed to impose liquidity restrictions - i.e. under certain circumstances they can impose early redemption fees and even suspend redemptions for up to 10 days....
Why is this happening? The financial crisis in 2008 revealed that money market funds could have serious liquidity issues and weren't nearly as "safe" as many investors assumed. This reform is a way to explicitly address those issues. ....
Chopping your statement like mad, but I do find it interesting when read in close time frame with various gold threads. Kind of like when the bell boy starts giving one stock tips it may be time to get out of the market.
__________________
calmloki is offline   Reply With Quote
Old 03-26-2015, 10:18 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,459
It's definitely a move towards transparency. And for institutional investors that's how things will be unless they use a government or treasury MM fund.

But it is also an attempt to shield the retail investor from a floating NAV. Yet these new liquidity restrictions are imposed instead, and if we went through another financial crisis, like in 2008, there might be some unexpected delays for the retail investor if they are in a prime (commercial paper) or muni money market fund.

In my taxable brokerage accounts, a money market fund is used as the core account. So there isn't really a way to get away from having funds parked at least temporarily in a money market fund unless you reinvest all distributions.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 03-26-2015, 10:18 AM   #6
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,429
Quote:
Originally Posted by audreyh1 View Post
Recently Fidelity has been posting some communications regarding changes coming to their money market fund line up to comply with new SEC rules that are coming in Oct 2016.
./.
Here are some related Fidelity docs:
A most helpful post. Lots of us were probably unaware, I know I was. Thanks!
__________________
MichaelB is online now   Reply With Quote
Old 03-26-2015, 10:20 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,459
Quote:
Originally Posted by calmloki View Post
Chopping your statement like mad, but I do find it interesting when read in close time frame with various gold threads. Kind of like when the bell boy starts giving one stock tips it may be time to get out of the market.
I don't think it really means anything other that it will have taken 8 years to implement a solution!!! It's pretty sweeping though, so maybe it deserved the long study and consideration.

I was aware of the exposed risks from 2008, so for most of my cash I have moved well away from MM and into other vehicles. But I still can't get away from needing a core fund in my accounts.

I suspect there will be a lot more buzz about this in the future. But maybe not until next year when the "regular Joe" starts seeing merges or renaming or whatever on their statements.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 03-26-2015, 10:26 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,459
Quote:
Originally Posted by MichaelB View Post
A most helpful post. Lots of us were probably unaware, I know I was. Thanks!
The M* Fidelity thread gave me a heads up a couple of weeks ago with links to one of the articles, and I tracked down some of the other Fidelity articles. I've been studying the issue and deciding what action to take if any.

The FIRE forum has keep me well informed on several financial issues over the years so I like to return the favor when I can.

I did switch one of my core MMs from a muni MM to a government MM. It's not making any (taxable) money anyway. But I prefer the fixed NAV and no liquidity because I use it as a temporary holder for distributions, etc.

The other accounts are using Fidelity Cash Reserves and will be automatically converted to a government MM at some point. In the IRAs we don't use MM because all distributions are reinvested.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 03-26-2015, 10:57 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,459
FWIW - this is going to increase the demand for short-term treasuries and govt debt. Downward pressure on short-term govt rates, IMO. But the effect will be to increase the spread - so short-term commercial paper and muni paper may see an increase in rates.

It depends on how many retail investors and institutional investors switch to government paper to maintain the fixed NAV and no liquidity restrictions.

But this may very well affect ultra-short bond funds.

This is all just speculation.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 03-26-2015, 11:26 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,412
Quote:
Originally Posted by gcgang View Post
Money market fund? they still have those? ...
+1 Money market yields have been so pathetic that I ignore them and use online savings accounts instead.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 03-26-2015, 05:01 PM   #11
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,815
Quote:
Originally Posted by audreyh1 View Post
.
The gist is: certain funds will not have a stable $1 NAV, but rather be allowed to float to 4 decimal places. This is limited to institutional money market funds. Retail money market funds will not float the NAV, but will be allowed to impose liquidity restrictions - i.e. under certain circumstances they can impose early redemption fees and even suspend redemptions for up to 10 days.
When this was first proposed, I thought the floating NAV was a good idea because it might remind investors that these are mutual funds, not bank accounts. I think retail investors could use that reminder a lot more than institutional investors.
__________________
Independent is offline   Reply With Quote
Old 03-26-2015, 06:43 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Jan 2008
Posts: 1,495
Quote:
Originally Posted by pb4uski View Post
+1 Money market yields have been so pathetic that I ignore them and use online savings accounts instead.
Same here.
__________________
Options is offline   Reply With Quote
Old 03-26-2015, 07:26 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,408
i hold the distinction of actually having a money market break the buck. i lost a few cents on the dollar. but it took months to get our money .

part of it was frozen and given back very slowly.
__________________
mathjak107 is offline   Reply With Quote
Old 03-26-2015, 08:35 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,459
Quote:
Originally Posted by mathjak107 View Post
i hold the distinction of actually having a money market break the buck. i lost a few cents on the dollar. but it took months to get our money .

part of it was frozen and given back very slowly.
OMG! Wow!
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 03-27-2015, 03:34 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,408
yep , they were loaded up with lehman paper. it was called the reserve fund and was attached to our investment account as the money market .

we got back all but about 2% or so but i think it took a year to get it all out.

Money market breaks the buck, freezes redemptions - MarketWatch
__________________

__________________
mathjak107 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
2016 in the money call options on RIG perrytime Stock Picking and Market Strategy 7 11-03-2013 12:18 PM
$500k college loans, retirements to fund, still want to retire in 2016 in my 50's!!! tiredofworking2 Hi, I am... 5 09-23-2013 12:43 PM
Do you have a 401k, how good is it, and are changes coming July 1? jIMOh FIRE and Money 35 05-17-2012 12:13 AM
Prime Money Market Fund vs. Total Bond Fund two4theroad FIRE and Money 2 04-10-2008 01:46 PM
Bond Fund and Money Market Fund Tax Treatment Question terminator FIRE and Money 4 03-01-2007 07:56 AM

 

 
All times are GMT -6. The time now is 11:17 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.