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Why Your Prime Money Market Funds Have Become Riskier 

October 27, 2016

John Grandits, Hard Assets Alliance, Newsmax Finance

Money market funds are regarded as the safest, most conservative investment. It’s where cash in most checking, savings, and brokerage accounts resides. The invested amounts are readily converted into cash when we need to settle transactions and make payments.

During Lehman’s collapse in 2008, however, investors holding positions in these funds faced a serious risk of loss. The decline in value of Lehman Brother’s debt securities pushed the Reserve Primary money market fund’s Net Asset Value (NAV) below $1 per share.

That was a watershed event in the financial industry. In response, the SEC passed a series of amendments in an effort to make money market funds more resistant to market stress. The amendments are designed to reduce interest rate, credit, and liquidity risk in government funds and set liquidity and redemption rules for prime funds.

Government money market funds now need to hold 99.5% of assets in government securities like Treasury bills or agency discount bills. Meanwhile, non-government money funds, aka prime money market funds, will have to release daily liquidity, cash flow, and NAV reports. Read more



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