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  • msf February 2018
Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

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Understanding The Shadow Price Of A Money Market Fund

TedTed
in Fund Discussions
FYI: Money market funds are popular cash management vehicles as they seek to maintain a stable net asset value (NAV) of $1 per share. During the 2008 financial crisis, the NAV of Reserve Primary Fund fell below $1 per share or “broke the buck” causing massive redemptions and the panic soon spread to other funds. The short-term credit markets froze and the Treasury Department had to step in to stop the damage. This event highlighted the risks in money market funds.

Subsequently, the U.S. Securities and Exchange Commission (SEC) introduced new rules and regulations to reduce the risks associated with money market funds. The enhanced disclosure requirements for the “shadow price,” or the market-based price of the fund portfolio introduced in January 2011, were a part of this wider money market fund reform.

In this article, we will examine what a shadow price is and the implications of the SEC ruling for investors.
Regards,
Ted
http://mutualfunds.com/education/understanding-shadow-price-money-market-fund/

Comments

  • msf
    edited February 2018
    "As long as the shadow price remains in the range of $0.9950-1.1050, the money market funds can price their portfolio at a stable $1 NAV per share."

    Whoops. $1.0050. Which is the whole point of the article (i.e. watch that the NAV of MMFs stay within half a penny of a buck.)
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