Nowhere to go – Upcoming money fund regulations will change world for trade receivable finance

Many corporate treasurers hold short-term cash for liquidity purposes in places like Commercial Paper, short term treasuries, banks and money funds. According to the Investment Company Institute, corporate treasurers and professional investors have close to $900 billion in prime money market mutual funds. The funds, which hold assets in short term corporate debt, are about 35% of the $2.6 trillion money fund industry.

On June 5, 2013, the Securities and Exchange Commission voted unanimously to propose additional measures that would reform the way that money market funds operate to make them less susceptible to runs that could harm investors. There are two principal alternatives

  1. Mark to market the net asset value (NAV) for prime institutional money market funds, in essence no more accounting myth that funds are always worth $1 but are floating based on the value of the underlying investment owned.
  2. Put restrictions on withdrawals, in essence, no more 100% liquidity.


A year later, regulators are still hashing out how to limit the risks money funds pose to the financial system. Tighter rules might not be finalized for several months and the five members of the SEC are still at odds.

Suffice to say, when changes do come about, I believe more investors will be seeking short term trade finance assets as an alternative – yields are much higher, and while liquidity is not, these assets mature typically in 90 days. This bodes well for all the successful P2P network plays out there.

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