Institutional Money Market Funds Association
The market turmoil which commenced in the summer of 2007 has resulted in the worst global financial crisis since the 1930s. Money market funds (MMFs) have not escaped this turmoil, and increasing attention has been directed towards the product from both investors and regulatory bodies. The global size of the industry now amounts to over USD 5tr, the vast majority of which is invested in the US. However, while the US market has a clear definition of what constitutes a money market fund, which has resulted in the development of a huge and systemically important industry, the market in Europe has never developed a widely accepted definition. This has resulted in a more fragmented industry in which a variety of products are referred to in this way, but operate within different parameters.
Money market funds in the US
MMFs originated in the United States in the early 1970s as a result of Regulation Q. Introduced in 1933 by the Glass-Steagall Act, Regulation Q is the Federal Reserve Board regulation that placed a limit on the interest rate that banks could pay, including a rate of zero on demand deposits. MMFs developed as a result of this; as they are not considered as a demand deposit, they are able to reap competitive interest rates for investors. Their success resulted in amendments being made to the Investment Company Act 1940, which instigated direct regulation of this fund type through Rule 2a-7 of the Securities & Exchange Commission (SEC). Following the implementation of this rule in 1983, no fund type has been permitted to promote itself as a “money market fund” in the US unless it complies with the requirements of SEC Rule 2a-7.
This rule applies strict criteria to MMFs, generating a product which both retail and institutional investors in the US recognise and utilise. The success of the product is such that nearly USD 4tr is currently invested in it.
In order to qualify as a MMF, the product must:
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