Schwab Is Forcing Cash Out Of Money Market Funds And Into Treasuries

Tyler Durden's picture

While perhaps not quite as dramatic (or confusing) as last week's announcement by Scottrade that the discount online broker would no longer allow Canadian citizens to hold accounts, in a new surprising development, another online broker, Charles Schwab has started informing some of its clients that "between June and October 2016, Schwab will update the cash feature on your account(s) from the current retail prime or municipal money market fund sweep to the Schwab Government Money Fund" or the SWGXX, which "will invest at least 99.5% of its total assets in cash, U.S. government securities and/or repurchase agreements that are collateralized fully by cash and/or U.S. government securities; under normal circumstances, at least 80% of the fund's net assets will be invested solely in U.S. government securities including repurchase agreements. "

In other words Schwab is telegraphing that brokerages have begun permanently unwinding hundreds of billions if not trillions in money market-funds, and rotating it almost entirely into government securities.

The stated reason for this quiet unwind is the following:

"the U.S. Securities and Exchange Commission (SEC) has made changes to the regulations that govern money market funds. These new rules are intended to increase fund liquidity and to protect investors. The changes include new restrictions related to who will be permitted to invest in “retail” money market funds, which are non-government money market funds that are allowed to maintain a constant net asset value (CNAV). As a result, beginning later this year Schwab Prime Money Market Funds and Municipal Money Market Funds will be required to limit shareholders to natural persons (i.e., individuals, as opposed to businesses, defined benefit plans, or endowments)."

 

According to our records, the account(s) noted at the end of this letter is invested in a retail money market fund as defined by the SEC and the beneficial owner(s) of the account(s) is not a natural person(s). Therefore, you will not be able to maintain the position(s) in the account(s).

The unstated, if real reason may be different.

Recall that according to the punditry, one of the biggest hindrances to NIRP in the US is the trillions of dollars held in money market accounts. Well, one way of overcoming this "problem" is to preemptive begin a mandatory sweep pushing all money market-parked cash into government-linked securities. In other words, instead of roughly $2 trillion of inert cash held at money market funds (as per the latest H.6 statement), not only will a substantial portion of that cash "rotate" into Treasury holdings in the coming months (resulting in yet another key driver of demand for Treasury paper) but will also eliminate the money market overhang risk if and when the Fed decided to join the global negative interest rate scramble, and unleash NIRP.

Schwab automatically assumes that all clients affected by this change will accept: "if you are in agreement with this change in your cash feature, no response is required from you. Schwab will consider a non-response to this notice as your authorization and instruction to change your cash feature." Those who disagree have the "option" of either sweeping their cash into th corporate bank (thus being exposed to Schwab corporate counterparty risk), or, as Schwab conveniently adds, "you also have the right to close your brokerage account(s) without penalty at any time."

Here is the notification letter Schwab has been sending out.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Joebloinvestor's picture

Delayed redemptions or an "early withdrawal penalty".

Seizure to follow.

glenlloyd's picture

I have to wonder when the SEC decided this change needed to happen? Certainly there's a paper trail there of when the decision was made to do this, that is unless the FED just tapped the SEC on the shoulder and whispered something in their ear.

Where's the change in the law?

zeropain's picture

they could put the money market funds into SH etf.

DownWithYogaPants's picture

 In the phrase:  "eliminate the money market overhang risk if and when the Fed decided to join the global negative interest rate scramble, and unleash NIRP."

What is "money market overhang risk" ??????

----------------------------------------------------------------------

Just found this:  http://www.investopedia.com/terms/m/marketoverhang.asp

So they are assuming the monkey market funds will have strong selling pressures but the government bonds will fare better??

Truther's picture

I'd like to Schwab my D**k is Charles's ass.

eatthebanksters's picture

Sounds like the new government policy is meant to create some additional liquidity in the event the shit hits the fan...basically forcing money out of other investments will take some of the air out of the equity inflationary balloon while forcing invesments into more secure places.  If everything was as good as Obozo claims it is, then why the big changes?  

knukles's picture

Me no thinkie that this is "NIRP" motivated, altho somewhere it might tie in.
The new SEC regs have stipulated that certain types of Mutual Money Market Funds (MMF's) are exempt from the mark to market rules.  The big institutional investor is not.  The retail ma and pa kettle is, so retail is being placed into funds that will keep a constant NAV, that by definition are of the higher quality nature.
I'm going trough this with several vendors right now and don't see it as a NIRP motivated decision.  Now fairness to note that the higher quality funds used are the ones that pay the lesser interest, so I can see why  ...
You get my line of reasoning ....

So be it.

Tom Servo's picture

I think Fidelity did something similar last year - wouldn't know, i'm not invested with those fuckers anymore...

 

Squid-puppets a-go-go's picture

i think schwab have put their arse out i the legal breeze if they think that no response to their letter allows them to 'presume acceptance'.

philipat's picture

They can because they are simply implementing an SEC Regulation so notification is all that is required. But, since when did cash become unsafe? And to whom?

finametrics's picture

Fidelity did this a few months ago. It goes without saying that fidelity is slightly larger than chucky Schwab. I can pull up the letter if Any1 gives a shit but it basically reads similarly to this one.

Theosebes Goodfellow's picture

~""the U.S. Securities and Exchange Commission (SEC) has made changes to the regulations that govern money market funds. These new rules are intended to increase fund liquidity and to protect investors."~

Hmm. The SEC pulling regulations out of its ass. Sounds like the same horseshit the EPA does. I'm sorry, when did Congress approve this? I think it has little to do with "fund liquidity" or trying to "protect investors". It sounds more like "flushing the bushes" for "quail". "Maybe mo' betta' I no hava' one of dems' brokerage 'counts."

RaceToTheBottom's picture

Mattresses or that painted over wall of silver bricks are looking pretty good right now

True Blue's picture

I don't know. Something here smells. Isn't this exactly what 'conspiracy theorists' claimed the gov't would do with everyone's 401k? Taking the cash and forcing people to accept their depreciating and unpayable gov't debt in its place?

Phoenix Pilgrim's picture

I just received a similar letter from Fidelity on my 401K last week. Says my employer has "decided to replace the money market mutual fund that is currently available in the Retirement Savings Plan (RSP). The JPMorgan Prime Money Market Fund Institutional Class will be replaced in the RSP by the JPMorgan U.S. Government Money Market Fund Capital Shares on May 23, 2016. You are not required to take any action...."

headhunt's picture

There is not enough actual cash to cover a run on Money Market funds.

This happened in 2008 and precipitated the entire f'ing crash.

Squid-puppets a-go-go's picture

yer, and what about the cash balance needed to take 401 admin fees from, and taxes?

RiverRoad's picture

There is not enough actual cash to cover a run on just about anything you want to name these days.  Gonna be icky.

BarkingCat's picture

he who panics first, panics best.

FedFunnyMoney's picture

There is as much cash as is needed to cover any run on the MM funds. The Federal Reserve just types the needed numbers into the terminal and presses Enter.

It's that simple.

They are definitely setting up the environment for NIRP.

tjeffersonsghost's picture

Jim Rogers and Ron Paul warned us this was gonna happen...

https://www.youtube.com/watch?v=Gzbbih0K1ek

SixIsNinE's picture

is it also what Jim Willie has long referred to as the USD being "ring-fenced" and we'll have internal and external "scheisse" dollars to play with as the ROW gets on with things (China AIIB CHIPS ) ...?

 

again, what i've conveyed before several times, that the USAF announced in 2014 that by 2017/18 they are implementing a coastal electronic "fence" with ground based mobile units communicating with the constant patrol of USAF aircraft ... (see craigbhulet.com for podcasts about it, he attended the USAF briefing to the public describing the rollout )

also fits with the Trump Wall idea, is in actually to keep us in not the other way ...the stampede of those who can leave is being undermined by the capital restrictions being put in place ...

just ideas.... i sure wouldn't want to holiday in Baghdad anyway

Tahiti, yessssssssssssssssssss

 

Zinu's picture
Zinu (not verified) May 1, 2016 2:41 PM

.

SoilMyselfRotten's picture

Oh no, not a criminal Putin regime, stop, yer scarin me. 

 

P.S. Does Putin have a Schwab account?

atmasko's picture
atmasko (not verified) Zinu May 1, 2016 2:56 PM

I wonder why ZH admins got so scared of Zinu comment that they took it away? Is it not allowed to write about putin regime crimes? Are ZH scared of that? Are ZH owned by putin regime? Will everyone who expose putin regime crimes will get banned here? Is that an objective source of info or a putin propoganda cgannel to spread anti-wester lies and hate propoganda?

 

Just questions here...

ClydeCrashcup's picture

While in no way whatsoever standing up for or supporting the egregrously aggressive and interventionistic US foreign policy, especially in regards to Russia, I have noticed that there is more than a whiff of pro-Russian bias on this site.  Perhaps it has something to do with the Bulgarian/Russophilic origins of the founder and main writer of ZeroHedge?  It does not offend me unduly, but it must be recognized, and it hardly allows, or manifests, a fully objective stance in Russia-related articles here.

Absalon's picture

I assume that they are paid to be pro-Russian, anti-American.   You have to love free enterprise.

ClydeCrashcup's picture

I assume very little, I am merely stating my observations.

4thHorseman's picture
4thHorseman (not verified) ClydeCrashcup May 1, 2016 5:03 PM

Through the rose colored glasses of a naive libtard?

Billy the Poet's picture

I appreciate the fact that Russia attacked ISIS while the West funded ISIS and pretended to attack it.

FGH's picture

Billy, that's right on the money. But even better is the way he did it. One day shaking Barry's hand, after politely enduring his "marching orders" to help get rid of Assad, then THE NEXT DAY bombing US led anti-Assad "rebels". Best Obummer humiliation ever!

ConfederateH's picture

For the last 200 years Yankee's have instigated and executed thousands of wars, battles, false flags, assasinations, etc.  Aside from Israel, no other country comes close.

Just take the Shenandoa.  Or Wounded Knee.  How about Hiroshima.

Now who has killed more Americans over the last 200 years, and who is a bigger threat to Americans:  The US government or the Russian government?

 

RaceToTheBottom's picture

1)  The post you are referring to was probably a cryptic Good Point statement.  Get it "."?

2)  While I agree many posters here do take a pro Russian stance, the Bulgarian history of a Tyler probably makes him more anti Russian because of the Bulgarian history with Russia

i_call_you_my_base's picture

Those aren't "just questions", they're accusations rolled in speculation.

atmasko's picture

But Zinu comment about putin regime taking away freedom of expression in Russia - was removed and instead they edited and left this symbol '.'

That all was done just to hide comment about putin regime crimes. Those questions are legit.

i_call_you_my_base's picture

Zinu could have done it himself. You can edit your comments.

ClydeCrashcup's picture

I suspect that if the site administrator(s) had removed the comment, they would have removed ALL of it, leaving no trace of it in the first place.  From all appearances, the original poster simply removed their own comment, for their own reason.

atmasko's picture
atmasko (not verified) ClydeCrashcup May 1, 2016 3:39 PM

Account was blocked and comment was removed leaving symbol '.'. How I know this? Because it was my like 8th account blocked here. As soon as I expose criminal putin regime crimes and how russians suffer from it I got banned.

 

 

 

This link from which ZH admins are so scared and this is link why this criminal putin regime lies & manipulation propoganda channel ZH will block my account again. But still I will come again and spread truth about criminal putin regime crimes, lies and oppresion.

 

Russians will get free from propoganda spell and putin regime will collapse eventually.

 

Here is link https://m.youtube.com/watch?v=8XJGu_zXIzg

4thHorseman's picture
4thHorseman (not verified) knukles May 1, 2016 5:02 PM

.

Wanted to join in on the fun.

Uchtdorf's picture

Is everyone on ZH having their period today?

Chuck Walla's picture

.

FORWARD SOvi .... aaaaaaaahhhhhh! Spiders!

I hate Spiders!!!!  Get em off me!!!

Restorative_Ally's picture

Yawn. Nobody here is a baby. I think we can sort out propaganda and bias from truth as well or better than the next guy.

The rotten core of the financial system and the corrupt policies and activities of politicians are a real thing, not Putin propaganda. Every news site has a slant. Nobody here needs their hand held.

monk27's picture

Time for you to get blocked once more... the 9th time ! Believe me, nobody will miss you...