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Barry Ritholtz

Free Ride Ending for Money-Market Funds

The Securities and Exchange Commission is set to vote on rule changes for the money-market mutual fund industry in a move that is long overdue.
The fun is about to end.                                                                     
The fun is about to end.                                                                     

Of all the outrages endured during the financial crisis, perhaps the most perplexing involved money-market mutual funds. In an example of moral hazard writ large, this uninsured risk instrument -- with $2.57 trillion in assets -- somehow became too big to fail. Five years later, the Securities and Exchange Commission is finally taking steps to address this.

Money-market funds invest in a variety of short-term securities whose values fluctuate. You know, kinda like everything else that trades on a market. However, the funds' net asset value, and thus the share price, was always $1, regardless of what the underlying assets were really worth.