ICI wants money funds to bankroll redemption backstop

Proposed entity would be capitalized by the prime-money-market-fund industry.
JAN 31, 2010
The Investment Company Institute today floated an idea to create a state-chartered bank or trust company that would provide additional liquidity to prime money market funds in the event of severe market conditions. The bank or trust company would be capitalized by the prime-money-market-fund industry. “Remember, the [Securities and Exchange Commission’s] new liquidity requirements soon will require prime money market funds to hold, at a minimum, $540 billion in assets that are liquid within seven days, of which $180 billion must be redeemable on any given day,” Paul Schott Stevens, president and chief executive of the ICI, said today in Phoenix during the its Mutual Funds and Investment Management Conference. “This facility would provide a second buffer to assist prime money market funds in meeting redemptions.” The SEC’s new requirements, and in turn the ICI’s proposal, are in response to the panic that ensued when the Reserve Primary Fund "broke the buck" in September 2008, its net asset value falling to 97 cents per share. That marked only the second time in money market fund history that a fund's NAV has slipped below $1 per share. “We have discussed this facility with regulators and other policymakers, and recognize that there are significant hurdles we must clear to create such an institution,” Mr. Stevens said. “I can’t give you an exact timetable on when — or even if — this liquidity facility might be launched.” For such a facility to work, all primary money funds would have to participate, said Karrie McMillan, general counsel for the ICI. “That’s going to be a tricky issue,” she said.

Latest News

RIA dealmaking accelerates as three firms hit AUM milestones
RIA dealmaking accelerates as three firms hit AUM milestones

Wealth Consulting Group, Coastline and Maridea report fresh capital, acquisitions and asset growth as advisor M&A keeps climbing

VastAdvisor closes $1 million SAFE round from advisor-side backers
VastAdvisor closes $1 million SAFE round from advisor-side backers

Carson Group's Dani Fava, Jason Pereira of Woodgate Financial, and Sally George of Convergency Partners led the raise as the growth-tech startup builds out its AI platform and leadership bench.

Wells Fargo adds three advisor practices as recruiting rebound continues
Wells Fargo adds three advisor practices as recruiting rebound continues

New teams from William Blair, Ameriprise and UBS bring more than $560 million in combined client assets to the firm's employee and independent channels.

UBS will pay advisors 'handsomely' for banking starting next year
UBS will pay advisors 'handsomely' for banking starting next year

Regulators this year approved UBS Bank USA’s conversion to a nationally chartered bank.

SEC accuses Tricolor executives of hiding $800 million collateral hole
SEC accuses Tricolor executives of hiding $800 million collateral hole

How a subprime lender’s car-loan bonds allegedly unraveled before bankruptcy.

SPONSORED Direct indexing webinar targets tax-loss harvesting amid market swings

Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income