BlackRock Inc. (NYSE:BLK) has decided to shut down or consolidate some of its money funds and revamp some others. This comes on the back of new rules on the $2.7 trillion U.S. money fund market. Blackrock is the third largest money fund manager in the U.S. with $218 billion in assets.
BlackRock announced in letter sent to clients that the changes will reduce the money market funds of Blackrock from about fifty to more than thirty. Blackrock’s changes are the most comprehensive response yet to new SEC requirements. The new rules have been crafted to lessen the chances of investor runs during periods of market tumult.
According to the rules, starting in 2016, some “prime” money funds which cater to large institutional investors will be required to leave their $1 fixed share price. This will require them to float like other mutual funds.
The new Securities rules allow all money market funds to impose restrictions on withdrawals during market stress or ill requiresa fee to redeem shares. The new regulations have been made to avoid a repeat of 2008 financial situation where investor stampede occurred.
In 2008 one fund exposed to the debt of then bankrupt Lehmann Brothers Holdings led to fall of share value under $1. This prompted the federal government to interfere in the industry and ease a run on other money funds.
The move of BlackRock Inc. (NYSE:BLK) comes after its counterpart like Fidelity Investors, Goldman Sachs Asset Management, Federated Investors and JPMorgan released proposals to comply with the new Securities and Exchange Commission rules.
In January, Fidelity had announced that it planned to convert 3 money funds from prime to government only fund. The move included Fidelity’s $111 billion Fidelity Cash Reserves fund, the world’s largest money market fund.
Federated announced in February that it would convert some of its institutional prime and municipal funds to securities. JPMorgan also announced that it would adopt a floating share price in accordance with the rules.