Money market reform has gained momentum in recent years after the world’s largest money funds “broke the buck,” or dipped below $1 per share, after the collapse of the Lehman Brothers, one of the fund’s investments. The collapse fueled wide spread panic, with investors making a run on the fund.
According to Federal rules, money funds are not allowed to deviate from $0.9950 and $1.0050 per shares. In the event the fund dips below $0.9950, a money market fund could face liquidation.
Recently, major fund providers have taken steps to provide more transparency in their money funds, disclosing values on a daily basis rather than monthly, reports Kirsten Grind for the Wall Street Journal. After Goldman Sachs announced its intent to disclose values of their funds each day, J.P. Morgan Chase, BlackRock and Dreyfus said they will also list net asset values each day. [Short-Duration Bond ETFs vs. Money Market Funds]
Robert Plaze, former deputy director of the SEC’s division of investment management, believes that the daily disclosures could make investors more likely to pull money out as a result of seeing any small blips.
Since the money market funds typically trade at a fixed net asset value of $1 and have been the go-to, safe investment to park cash, any changes that puts the $1 standard at risk could put pressure on the whole $2.7 trillion money fund market.
As an alternative, some have already taken an interest in ultra short-term duration bond ETFs as an alternative. Short-duration ETFs include PIMCO Enhanced Short Maturity Strategy (NYSEArca: MINT), SPDR Barclays 1-3 Month T-Bill (NYSEArca: BIL), iShares Barclays Short Treasury Bond (NYSEArca: SHV) and Guggenheim Enhanced Short Duration Bond (NYSEArca: GSY). [Money Market Fund Reform Would be Boon for Short-Duration ETFs]
For more information on money market funds, visit our money markets category.
Max Chen contributed to this article.