Understanding-Liquidity-in-Money-Market-MFs

Understanding-Liquidity-in-Money-Market-MFs - leadership...

This preview shows page 1 - 2 out of 4 pages.

leadership series Liquidity is defined by SEC regulations For a money market mutual fund, “liquidity” refers to the extent to which the fund’s holdings can be quickly converted to cash. Liquidity is a particularly important attribute of a money market mutual fund, as it measures the fund’s ability to meet near-term shareholder redemptions. The SEC defines “liquid assets” in Rule 2a-7. 1 This rule defines the categories of daily liquid assets and weekly liquid assets by identifying specific types of fund holdings that can be readily converted to cash within one or five business days, respectively. The particular instruments and claims that qualify as either daily or weekly liquid assets are listed in Exhibit 1, below. Understanding Liquidity in Money Market Mutual Funds August 2014 Bob Litterst Chief Investment Officer, Money Markets Kevin Meagher Senior Vice President, Deputy General Counsel Shawn Verbout Managing Director of Quantitative Research NEW SEC RULES: Current Securities and Exchange Commission (SEC) regulations define liquidity and prescribe a minimum amount of liquidity that each money market mutual fund must hold. New SEC rules permit the imposition of liquidity fees and redemption gates on certain money market mutual funds if a fund’s weekly liquid assets were to fall below 30%. At Fidelity Investments, we carefully monitor the factors affecting redemptions in our money market mutual funds, and apply a consistent, rigor- ous approach to determine the appropriate levels of liquidity across all our funds. We understand that readily available liquidity is a primary goal of our money market mutual fund shareholders, and therefore we make liquidity management a critical priority in our investment process. MARKET PERSPECTIVES Daily Liquid Assets Weekly Liquid Assets Cash 2 Daily liquid assets (see column at left) Direct obligations of the U. S. government 3 Government agency discount notes with remaining maturities of 60 days or less Securities that will mature or are subject to a demand feature 4 that is exercisable and payable within one business day Securities that will mature or are subject to a demand feature that is exercisable and payable within five business days Receivables scheduled to be paid within one business day Receivables scheduled to be paid within five business days EXHIBIT 1: Types of fund holdings that satisfy SEC definitions of daily and weekly liquid assets. Money market mutual fund liquidity must exceed a prescribed level Rule 2a-7 requires that each money market mutual fund hold sufficient liquidity to meet reasonably foreseeable shareholder redemptions, as well as any other commitments it has made to shareholders. In fact, the SEC also imposes the complementary requirement that money market mutual funds adopt “know your customer” policies and procedures to assure that funds undertake appropriate efforts to identify risk characteristics of their shareholders and to plan their holdings of liquid assets accordingly.
Image of page 1

Want to read all 4 pages?

Image of page 2

Want to read all 4 pages?

You've reached the end of your free preview.

Want to read all 4 pages?

{[ snackBarMessage ]}

Get FREE access by uploading your study materials

Upload your study materials now and get free access to over 25 million documents.

Upload now for FREE access Or pay now for instant access
Christopher Reinemann
"Before using Course Hero my grade was at 78%. By the end of the semester my grade was at 90%. I could not have done it without all the class material I found."
— Christopher R., University of Rhode Island '15, Course Hero Intern

Ask a question for free

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern