No Further Regulation Needed in US Money Market Funds; New ICD Whitepaper

• Run on funds could, and should, have been avoided
• Risk-management strategies should change toward self-regulation
• Option #9 recommendation combines reform with advanced analytics
• Download here: ICD-Commentary MMF Reform Option 9.pdf

SAN FRANCISCO & LONDON & NEW YORK--(BUSINESS WIRE)-- Institutional Cash Distributors, (ICD), the world’s premier independent institutional money market fund (MMF) portal and risk management provider, today published a new report that investigates the causes leading up to the 2008 credit crisis and the run on MMFs. The report argues that the 2008 run on funds could have been prevented, and delivers new safeguards that will help prevent a new crisis.

The report, Money Market Fund Reform Option #9, contends that significant corrective reforms made to Rule 2a-7 by the Securities And Exchange Commission in 2010 are already in place and working. Moreover, the synthesis of the new fund data made available from these 2010 reforms, combined with new industry exposure analytics applications developed by ICD, have resulted in a comprehensive, end-to-end MMF investing process that the market place is widely adopting. This is Option #9.

Option #9 is predicated on four key premises that were not present in 2008:

• With analytics in place the Reserve Primary Fund would have been a smaller, lower risk fund because the market incentives to incur greater risk for higher yield would not have existed.
• MMF portfolios would have been significantly better diversified since greater transparency into the funds and exposure analytics tools enable corporate treasurers to establish and monitor new investment guidelines.
• Institutional investors would not have been forced to “panic sell” out of lower-risk MMFs if they had improved visibility into underlying holdings.
• The MMFs and short-term marketplace would have been more liquid.

Individually these factors would have minimized the 2008 run on MMFs. Collectively, as put forward by Option #9, these factors should have eliminated it.

“Money Market funds are a vital component in the global economy with $2.65 trillion in assets under management, with a majority of the short term state and local government debt, a large part of the outstanding short term Treasury and federal agency securities and approximately 40% of outstanding commercial paper,” noted Tory Hazard, ICD’s COO/CFO. “Of all the reform options on the table, only Option #9 significantly reduces risk to runs on money market funds without decreasing money market fund demand.”

Cal ISO CFO/Treasurer Ryan Seghesio said, “I was with Oracle when the financial crisis unfolded in 2008. The problem for all money fund investors was the lack of fund holdings transparency. Fund holdings, if at all available, were either dated or in such disparate formats that it was impossible to use or aggregate. When news of Lehman Brothers and other headline risk company difficulties escalated, we sold out of prime money market fund positions. With full transparency of fund holdings now available, there is no need to ‘panic-sell’ funds that do not hold risky securities.”

Hazard added, “The industry needed a comprehensive approach that enabled corporate investors to drive the marketplace to a state of enhanced security with reduced credit and liquidity risk. With Option #9, corporate treasury now has control of fund intelligence and the applications needed to manage risk on a dynamic basis.”

The ICD Commentary is available for download here: ICD-Commentary MMF Reform Option 9.pdf

About ICD:

ICD, comprised of FINRA/SIPC member Institutional Cash Distributors, LLC, and Institutional Cash Distributors Ltd, a U.K. Financial Services Authority registered firm, is the world’s premier independent institutional money market fund portal and risk management leader for the world’s most discriminating treasury clients. More information about ICD is available at www.icdfunds.com

PRESS:
Cognito Los AngelesMatthew Chisum, +1 310-246-9530
or
Cognito New YorkCaitlin Mitchell, +1 646-395-6300
or
Cognito LondonCharlie Morrow, +44 (0)20 7438 1100
[email protected]

Source: Institutional Cash Distributors