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The original was posted on /r/Superstonk by /u/WhatCanIMakeToday on 2023-07-13 00:47:58.
I smell something fishy in the newly adopted SEC rules for Money Market Fund Reform [SEC Fact Sheet] thanks to our amazing Jellyfish.
Money Market Funds (MMF) are basically a very safe, low risk, low return place to park cash; popular for retirement funds.
MMFs are pitched as a very safe place for older investors to park cash
And anytime retirement money comes up, I smell something fishy because Kenneth Griffin said pension plans will get wiped out (May 19, 2022) [Bloomberg: Plotkin ‘Chose a Decision That Worked for Him’: Griffin] [SuperStonk] [YouTube thanks Toxsic911!]
You Can Leave, But It’ll Cost Ya
Per Jellyfish’s post, here are the top 4 changes Jellyfish found:
1. No More Suspension of Redemptions: Previously, if a fund’s liquidity (how quickly assets in the fund can be converted to cash) fell below a certain level, the fund’s board could temporarily stop redemptions (investors getting their money back). This will no longer be allowed.
2. Liquidity Fees: The SEC is removing the link between liquidity levels and the possibility of liquidity fees. Instead, some money market funds will have to set up a system for liquidity fees that will better distribute the costs of providing liquidity to investors who are redeeming their shares.
3. Increased Liquid Asset Requirements: The minimum requirements for daily and weekly liquid assets are being increased to 25% and 50% respectively. This means funds need to have more assets that can be quickly converted to cash.
4. New Liquidity Fee Framework: Some money market funds will have to implement a new system for liquidity fees. This is designed to more fairly distribute the costs of providing liquidity to investors who are redeeming their shares.
#1. Investors can choose to leave at any time. Thanks? I don’t know if this is an improvement or not because MMFs could previously stop redemptions meaning investors couldn’t get their money back when performing poorly. As an example of this, you saw in Big Short how Burry limited redemptions in his hedge fund so obviously there’s at least one instance where investors benefited by being forced to stay invested. That said, I’m a fan of individual choice so this gets a 👍 from me.
#2 and #4. It’ll Cost Ya To Exit. This part is interesting because even though anyone can leave, the MMFs will set up a fee structure so that those who leave first probably pay the least to get out while those who leave later pay more to get out. It’s pretty clear that this penalty fee to exit is supposed to disincentivize people from running out of a MMF. I don’t know how useful this is because imagine a bank that’s getting closer to bankruptcy telling you it’ll cost increasingly more to withdraw your money as others pull out their money. Obviously, the first one out the door pays the least so this might end up backfiring with everyone trying to make an exit as fast as possible to pay the smallest penalty in getting their money out. Though, as I’ll explain below, this might be the intended outcome!
#3 MMFs need more cash on hand for people leaving. LOL See above about runs on the MMFs.
MMFs are so safe the SEC needs to make them safer
According to the SEC, the new rules “are designed to improve the resilience and transparency of money market funds” because the investors reallocated their money out of a lot of MMFs (particularly institutional funds) back in March 2020.
But why? Well, back in 2003 there was a proposed rule to add MMFs to the acceptable forms of margin collateral to the Options Clearing Corporation (OCC) [Federal Register].
The proposed rule change would expand the acceptable forms of margin collateral to include shares of money market funds meeting specified criteria.
And, per the current OCC Rules (Last Modified: July 7, 2023), RULE 604 – Form of Margin Assets lists Money Market Fund Shares as one of the acceptable forms of margin assets:
And, RULE 705 – Forms of Margin also lists shares in money market funds.
This is the same OCC from my DD The Fox is Guarding the Hen House: The SEC is allowing the OCC unlimited access to money in pension funds and insurance companies.
And, the OCC has come up before in my prior DD, Shadow Banking System: Embiggening Systemic Risks For Profit, where I finally managed to outline how the new OCC rule proposals will funnel money from the next bailout of insurance companies and pension funds to pay for MOASS.
Exactly as Kenneth Griffin predicted
How The New MMF Rules Fit In
Clearing Members who gave MMF assets to the OCC as collateral1 don’t want to and can’t sell those MMF assets at a loss. So, when shit hits the fan the OCC is (unsurprisingly) the first one out the door using their new rules to move the MMF collateral over to Insurance Companies & Pension Funds (2, 3) to hold on to and get cash to pay for MOASS.
These new rules on MMFs allow investors to exit the MMFs by paying fees to protect anyone stuck behind and can’t exit the MMF, like the insurance companies and pension funds.
The amended liquidity fee framework is designed to protect remaining shareholders from dilution and to more fairly allocate costs so that redeeming shareholders bear the costs of redeeming from the fund when liquidity in underlying short-term funding markets is costly.
So the next time there’s a market crash, anyone trying to leave the poorly performing MMFs pays for the privilege and supports anyone left behind, like those Insurance Companies and Pension Funds who are stuck holding the MMF Collateral the OCC gave them to hold on to.
As these MMFs are pitched as very safe investments for retirement funds, it’s a pretty safe bet that a lot of retirees and money **ahem* pension *ahem** managers2 who have no idea why the cash in their MMFs is disappearing will have the expected knee-jerk reaction to liquidate and exit those MMFs; paying fees to do so.
TADR: These new fees shift part of the cost of the next bailout to any MMF investors, particularly targeting retirement assets, who exit their Money Market Funds during the next market crash. MOASS paid for in part by retirees and pension plans, brought to you by Kenneth Griffin.
[1] See also, OCC Margin Methodology.
[2] In addition to investors who may pressure money and pension managers to pay fees to exit poorly performing MMFs, I wouldn’t be surprised if these fund managers also received kickbacks for having their clients pay fees to exit the MMF funds.
I had taken some of my cash that was in an MMF out prior to the whole debt ceiling fiasco, but now it is back in. This is interesting… I hope I don’t get penalties for removing cash in a similar way in the future…
