It’s Official, SEC approves freezing of Money Market Funds

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  • Wed, Jan 27, 2010 - 05:34pm

    #1
    John99

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    It’s Official, SEC approves freezing of Money Market Funds

From zerohedge…

Suspending Money Market Redemptions Is Now Legel; SEC Approves New Money Market Regulation In 4-1 Vote

Submitted by Tyler Durden on 01/27/2010 11:31 -0500


Zero Hedge discussed a month ago the disastrous prospects of what would happen if the new proposal contemplated by the SEC, which would allow the suspension of redemptions from Money Market Funds, were to pass. Well, in a nearly unanimous vote, Money Market Funds now have the ability to suspend redemptions, courtesy of the SEC’s just passed 4-1 vote. This explains the negative rate on bills: at this point, should there be another meltdown, money market investors will not, repeat not, be able to withdraw their money purely on the whim of Mary Schapiro. As the SEC noted: “We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares.” Too bad investors’ hardships considerations ended up being completely irrelevant…..

  • Wed, Jan 27, 2010 - 06:40pm

    #2
    Peak Prosperity Admin

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    Re: It’s Official, SEC approves freezing of Money Market …

Zerohedge mainpage was having connection problems to their articles (when I posted), so here is the article link:

http://www.zerohedge.com/article/suspending-money-market-redemptions-now-legel-sec-approves-new-money-market-regulation-4-1-v

More of the article:

As the SEC noted: “We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares.” Too bad investors’ hardships considerations ended up being completely irrelevant.

As a reminder, here is the gist of the proposal as pertains to redemption suspension:

Proposed rule 22e–3(a) would permit a money market fund to suspend redemptions if: (i) The fund’s current price per share, calculated pursuant to rule 2a–7(c), is less than the fund’s stable net asset value per share; (ii) its board of directors, including a majority of directors who are not interested  persons, approves the liquidation of the fund; and (iii) the fund, prior to suspending redemptions, notifies the Commission of its decision to liquidate and suspend redemptions, by electronic mail directed to the attention of our Director of the Division of Investment Management or the Director’s designee. These proposed conditions are intended to ensure that any suspension of redemptions will be consistent with the underlying policies of section 22(e). We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares. Accordingly, our proposal is limited to permitting suspension of this statutory protection only in extraordinary circumstances. Thus, the proposed conditions, which are similar to those of the temporary rule, are designed to limit the availability of the rule to circumstances that present a significant risk of a run on the fund. Moreover, the exemption would require action of the fund board (including the independent directors), which would be acting in its capacity as a fiduciary. The proposed rule contains an additional provision that would permit us to take steps to protect investors. Specifically, the proposed rule would permit us to rescind or modify the relief provided by the rule (and thus require the fund to resume honoring redemptions) if, for example, a liquidating fund has not devised, or is not properly executing, a plan of liquidation that protects fund shareholders. Under this provision, the Commission may modify the relief ‘‘after appropriate notice and opportunity for hearing,’’ in accordance with section 40 of the Act.

Now interestingly, I wanted to check this out on other news sites and can not find mention of the freezing of redemptions on Reuters of WSJ

http://online.wsj.com/article/SB10001424052748704094304575029131155216718.html?mod=googlenews_wsj

http://www.reuters.com/article/idUSTRE60Q4KO20100127

Not a mention, so if anyone else can confirm the zerohedge claim, I’d appreciate it.

If true I’d be moving money out of MM funds.

 

  • Wed, Jan 27, 2010 - 06:54pm

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    Peak Prosperity Admin

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    Re: It’s Official, SEC approves freezing of Money Market …

OK. So does this and the world economy forum going on today at Davos have any connection?

  • Wed, Jan 27, 2010 - 07:04pm

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    Peak Prosperity Admin

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    Re: It’s Official, SEC approves freezing of Money Market …

John 

I am checking Before Its News right now but nothing yet.

I am sure they will have it along with the little purple people 

stealing the gold that is not in Fort Knox.

V

  • Wed, Jan 27, 2010 - 07:05pm

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    Peak Prosperity Admin

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    Re: It’s Official, SEC approves freezing of Money Market …

Looks like this has to do with the Prime Reserve fund that “broke” the buck in Sept. 2008 (due to the collapse of L. Bros.) –  as a side note, that fund still has not been totally liquidated and shareholders have received about 90% of the value as of Sept. 2008.  The final payout is to be this week or next with a total payout of 99%.  So, shareholders of the Prime Reserve fund lost 1% of their money and it took 1 1/2 years to get the investment back.  Most people, including the financial world, are unaware of this situation.  From what I can see, your article above is referring to this particular situation

see http://www.sec.gov/rules/ic/2008/ic-28465.pdf

But, the point should be made clear, that the SEC and congress allowed one of the largest money market mutual funds to break the buck, it can easily happen again.  The only safe money market funds would be ones that only invest in treasury securities and they are not paying anything right now.  In fact yesterdays 4 week treasury auction was a negative yield  http://www.bloomberg.com/apps/news?pid=20601103&sid=ahegQQCnLVyo

 

IF anyone can find any current information I would love to see it and read it..

  • Wed, Jan 27, 2010 - 07:13pm

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    Peak Prosperity Admin

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    Re: It’s Official, SEC approves freezing of Money Market …

Thanks for the dig John99, you always come up with good stuff.  This is an important issue and a blatant power grab on our money.

They know what’s coming and are making sure we are the losers  Big insiders will know when to get out and the avalanche they create will bury the rest of us.

Larry 

  • Wed, Jan 27, 2010 - 07:21pm

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    Peak Prosperity Admin

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    Re: It’s Official, SEC approves freezing of Money Market …

[quote=DrKrbyLuv]

They know what’s coming and are making sure we are the losers  Big insiders will know when to get out and the avalanche they create will bury the rest of us.

Larry 

[/quote]

And then maybe enough of “us” will get pissed off to do something about it.

I do believe it’s open season on incumbents.  I don’t care which side of the aisle they are on – come 3 November a lot of our elected “leadership” is going to wake up unemployed trying to figure out who was driving the truck that ran them over.

  • Wed, Jan 27, 2010 - 07:27pm

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    Peak Prosperity Admin

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    Re: It’s Official, SEC approves freezing of Money Market …

I just read this news on the NASDAQ  website and it appears to be true….

http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201001271146dowjonesdjonline000534&title=updatesec-money-market-rule-requires-value-fluctuation-disclosure

 

But, in my opinion, it really is not much of a change.  I  am very familiar with what happened to the prime reserve fund in Sept. 2008.  L. Bros went under on Monday, we found out Monday night that the prime reserve money market fund had 600million in L Bros bonds, tried to liquidate our positions on Tuesday and the fund did not allow the liquidation request.  But the institutional investors were able to get out….. hard to believe I know.    Not sure the mechanics behind the decision – whether the board voted or the SEC stepped in but a decision was made very quickly.  It appears to me that the ruling today just makes it official what the fund companies already felt they could do, and did do back in the beginning of this melt down. 

  • Wed, Jan 27, 2010 - 08:26pm

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    Peak Prosperity Admin

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    Re: It’s Official, SEC approves freezing of Money Market …

Does anyone have the reference to the entry on this in  the Federal Register?

  • Wed, Jan 27, 2010 - 08:51pm

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    Re: It’s Official, SEC approves freezing of Money Market …

Thank you, Memorrison, Zerohedge comes through again.

From the NASDAQ site:

“The rules also would permit a money-market fund’s board of directors to suspend redemptions if the fund is about to “break the buck” by having a net asset value fall below $1 per share. Currently the board must request an order from the SEC to suspend redemptions.

The halting of redemptions will stem the motivation for runs. It also will eliminate the need for a failing fund to sell securities into a potentially de- stabilized market and further drive down prices,” Schapiro said.

SEC Commissioner Kathleen Casey dissented in the vote, protesting the new rule’s requirements that money-market funds use credit rating agencies to evaluate securities. In Casey’s view, that part of the rule encourages the industry’s reliance on credit rating agencies, which can be wrong in their assessments.

http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201001271146dowjonesdjonline000534&title=updatesec-money-market-rule-requires-value-fluctuation-disclosure

Now investors have one further tight-rope to walk, which as Morrison points out, could freeze their assets for unknown periods. Another could call for gold!

 

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