Suspending Money Market Redemptions Is Now Legal; SEC Approves New Money Market Regulation In 4-1 Vote

Tyler Durden's picture

Zero Hedge discussed a month ago the disastrous prospects of what would happen if the new proposal contemplated by the SEC, which would allow the suspension of redemptions from Money Market Funds, were to pass. Well, in a nearly unanimous vote, Money Market Funds now have the ability to suspend redemptions, courtesy of the SEC's just passed 4-1 vote. This explains the negative rate on bills: at this point, should there be another meltdown, money market investors will not, repeat not, be able to withdraw their money purely on the whim of Mary Schapiro. As the SEC noted: "We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares." Too bad investors' hardships considerations ended up being completely irrelevant.

As a reminder, here is the gist of the proposal as pertains to redemption suspension:

Proposed rule 22e–3(a) would permit a money market fund to suspend redemptions if: (i)
The fund’s current price per share, calculated pursuant to rule
2a–7(c), is less than the fund’s stable net asset value per share; (ii)
its board of directors, including a majority of directors who are not
interested  persons, approves the liquidation of the fund; and (iii) the fund, prior to suspending redemptions, notifies the Commission of its decision to liquidate and suspend redemptions, by electronic mail directed to the attention of our Director of the Division of Investment Management or the Director’s designee.
These proposed conditions are intended to ensure that any suspension of redemptions will be consistent with the underlying policies of section 22(e). We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares. Accordingly, our proposal is limited to permitting suspension of this statutory protection only in extraordinary circumstances. Thus,
the proposed conditions, which are similar to those of the temporary
rule, are designed to limit the availability of the rule to
circumstances that present a significant risk of a run on the fund.
the exemption would require action of the fund board (including the
independent directors), which would be acting in its capacity as a
fiduciary. The proposed rule contains an additional provision that
would permit us to take steps to protect investors.
Specifically, the proposed rule would permit us to rescind or modify
the relief provided by the rule (and thus require the fund to resume
honoring redemptions) if, for example, a
liquidating fund has not devised, or is not properly executing, a plan
of liquidation that protects fund shareholders. Under this provision,
the Commission may modify the relief ‘‘after appropriate notice and
opportunity for hearing,’’ in accordance with section 40 of the Act.


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Anonymous's picture


george22's picture

Great post! I?m just starting out in community management/marketing media and trying to learn how to do it well - resources like this article are incredibly helpful. GoSeeq

george22's picture

Great post! I?m just starting out in community management/marketing media and trying to learn how to do it well - resources like this article are incredibly helpful. GoSeeq

Anonymous's picture

what do the big boys like Vanguard, Fidelity, etc have to say about this?

Anonymous's picture

We have nothing to say. We can't do anything anyway. We must follow the SEC mandates. Nothing to see here, move along. Z

Anonymous's picture

This is why t-bills have negative yields. According to the new rules money market funds can only invest five percent of their assets in second tier securities. That means portfolios have to be rebalanced with 95% AAA assets which means the only thing they can really buy is Treasurys.

Anonymous's picture

5% is not new and AAA has no bearing on money market funds. It is the short-term rating, A1 from S&P, P1 from Moodys that is considered in the funds make-up. A money market fund has been able to hold up to 5% of second-tier paper (A2/P2) and still be considered a top-tier fund.

Anonymous's picture

Is this coming soon?

The fools will instigate a hoarding spree.

ATG's picture

Since there are less than a trillion dollars in

Federal Reserve Note physicals available,

versus trillions in virtual Gold and Silver ETFs

and exchange derivatives, mattress money may

rule as prices go back to the 1930s. Wait until

they turn off internet banking and brokers...

SV's picture

Just took down a 401K not too long ago.  Didn't take a genius to see the writing on this wall was coming.  Exits are getting blocked people... 

Anonymous's picture

the fascist state is alive and well....germany
1933 has embodied america in the 4th reich....

Cindy_Dies_In_The_End's picture

Pattern? what pattern?!? Nope, don't see any patterns developing here. Hmm.

Cindy_Dies_In_The_End's picture

Pattern? what pattern?!? Nope, don't see any patterns developing here. Hmm.

ATG's picture

Mandatory Pension conversions to annuities

buying only Munis and Treasuries?

Ammo food sales off the chart first...

Anonymous's picture

Can anyone recommend an online trading account that doesn't park cash in a money market?

naiverealist's picture

I have accounts at TD Waterhouse in which I have specifically directed them to hold my cash as cash and not "sweep" it daily into their money market account.  I presume that most dealers have the same option, but don't know, as I have been happy with my broker.


This does not constitute a reccomendation, only a depiction of my actions.

gookempucky's picture

Ditto'd that last year -also with TD--mucho grateful ZH.

peterpeter's picture

And what protection do you have against TD going up in smoke?  If you're worrying about gates closing on money market funds (something that has happened so far only once that I know of), it would seem to me that you'd also try to evaluate the risk of a bank failure...

SIPC coverage is laughable, since they would become insolvent in the event of a failure as large as TD - and it only covers the first $100K in cash.... so you'd be better off IMO linking your TD account with an FDIC insured bank and parking your excess funds in a checking account.

Another option to consider would be to buy ETFs holding short term govt paper, like BIL.


Anonymous's picture

ditto'd ditto'd with TD, i can't find any info if
TD Bank USA, N.A. received any TARP!

Anonymous's picture

I recently noticed that Schwab no longer sweeps my cash to an MM fund. It just goes into a category labelled "margin cash".

Anonymous's picture

Scottrade offers a bank deposit program as a sweep vehicle. My understanding is that many discounts utilize a similiar product. FDIC coverage up to 2.5 million because they spread your deposits over several participating banks.

Dr Horace Manure's picture

Now where do we run to?  No more MMMFs for me.  Let the run on MMMFs begin NOW.

tenaciousj's picture

Usually a sure fire way to create a run on certain funds, is to spook people into believing they no longer have control over said funds.

Anonymous's picture

Exactly. Whatever paltry amount of cash I have in my Schwab MMF is now coming out immediately. How dumb are these people? I guess they're just assuming most aren't paying attention.

SmalleyD's picture

I'm screwed. My 401k doesn't permit rollovers as long as you're still employed with the company. And what is one's choices after that, but to move it to a qualified IRA anyway.

Anonymous's picture

I believe I read on Mish's Economic blog a commentary
where the person quit his job so he could
withdraw his 401k.

Anonymous's picture

Maybe companies should start offering three day dismissals and rehirings as part of their 401K package.

Anonymous's picture

you know you can hold precious metals in an IRA, right?

ATG's picture

A good way to lose money with deflation...

Anonymous's picture

Deflation? Ha! Inflation is coming dude - it's the only way they can take down these debts. Hell, it's already here in the food prices.

chet's picture

A good IRA should offer you much more choice than your 401k.  Many 401k's are a total rip with horrible fees and very few choices, and if it weren't for the match I'm getting, I wouldn't participate.

I'm in your boat.  401k is tied down as long as I'm employed.

RatherBFlying's picture

Check out the loan provisions. Max out the loan amount now.


What to do with it when you get it in your hand? Well, after this ruling, I don't know. Looking for suggestions.

Gimp's picture

After Captialism comes Fascisim. It will slowly creep into our lives until one day you will wake up and be under complete control. Ach Tung Baby!

trav7777's picture

JFC, they are really starting to lock the exits.

Devaluation coming?

Next rule:  SEC can suspend withdrawl from your checking or savings account.

deadhead's picture

actually, as I recall, banks have an enormous amount of leeway to saying no to withdrawals.  i don't remember all the details as it has been a long time since my banking days but banks do have that power to say no.

ATG's picture

Courts ruled deposits do not belong to

depositors, but the bank or broker...

Anonymous's picture

most internet banking, everbank, hsbc, countrywide a year ago were offering some interest rate incentives and would put in a couple of hundred thousand, but they had strict increment limits taking out daily, weekly, monthly. banks just suck. you can put it in a second but you can't take it out. actually dealing in cash was the biggest awful awakening, dirty worthless paper your trying to hide or keep safe. when you stack it is huge cause america only has $100.00 bills. try taking it back in the system, that is a wake up call. sit for hours while they have to count it by hand three times with a witness.

Anonymous's picture

I wish I had your problems.

Rusty_Shackleford's picture

This is an important point.  People think of checking and savings accounts as "their money".


It is not "your money".  "Your money" was loaned to the bank when you "deposited" it, and the dollar amounts on your accounts is what the bank "owes" you.


If you've got money in the bank, it is not yours.  It is just what the bank has agreed to pay you back - if it can.

It's as simple as this "Can't pay - Won't pay".


WaterWings's picture

In the same vein if you stop paying property taxes the government will take back your land. It never really was yours in the first place.

bugs_'s picture

Another foreshock.  Get ready.

Anonymous's picture

This is classic frogs in the pot... before most people realize what's happening it'll be too late.

Anonymous's picture

I withdrew on of my IRA's Jan 4,2010 thanks to the heads up by ZH!

Buckle up for some ugly times on the way!

Anonymous's picture

Everybody who has parked their 401K's in MM$ now
are watching their funds transform into a pile of
leaves....only waiting for the perfect storm to ignite
them into ashes.

Anonymous's picture

So let me get this straight - I own a stock, I decide to sell it because it is tanking, the remaining funds automatically go into my money market account - and then I can't get the money to put into a safe place like my safe when I think we are getting close to tyranny?

cougar_w's picture

Yes. And so equities start looking like a safer place to store money than MMF.

So back you go.