NEW YORK--(BUSINESS WIRE)--Liquidity levels of U.S. institutional prime money funds vary ahead of upcoming reforms, suggesting some funds will need to increase their liquidity cushions, according to a new report from Fitch Ratings. While 60% of prime funds maintain high weekly liquidity levels of 40% or higher, others have a low buffer relative to the 30% regulatory threshold which may be insufficient in light of liquidity-based triggers introduced by the Securities and Exchange Commission (SEC).
"While many institutional prime money market funds have already started to increase their liquidity levels, some funds may not have enough of a liquidity cushion if cautious investors redeem their cash on the fear that the fund may fall below the new threshold," said Greg Fayvilevich, Senior Director, Fitch Ratings.
The reforms coming into effect in October provide the funds that breach regulatory liquidity limits the ability to impose liquidity fees on redeeming shareholders or gate the fund to redemptions. These reforms as well as recent disclosure requirements have focused investors' attention on institutional prime funds' weekly liquidity levels. In response, the funds have been increasing their liquidity to alleviate investors' concerns about access to cash if regulatory liquidity thresholds are breached.
While average weekly liquidity for prime money funds has been increasing, there are still some funds that may need to add liquidity as a buffer to unexpected redemptions. The full report, ' U.S. MMF: Liquidity Profiles Vary', is available at 'www.fitchratings.com' or by clicking on the link below.
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U.S. MMF: Liquidity Profiles Vary