Financial News Friday – July 25, 2014
The New Rules for Money Market Funds (Morningstar)
The SEC has now ratified its news rules for money market funds. These are the funds your money is typically parked in when it is sitting in ‘cash’ in your brokerage or IRA account. Money market funds are considered cash equivalents because the notes and bills they invest in typically mature within 90 days, with a large chunk maturing even sooner.
The biggest change for retail investors is the mandatory 1% redemption fee (a redemption fee is a charge for selling shares.) This can occur if the fund’s investment in notes and bills that mature within one week decreases below 10% of the total value of the fund. If certain requirements are met, the fund’s board can also increase redemption fees to 2%.
Additionally, if less than 30% of a money market fund’s assets mature in less than 1 week, the fund’s board can vote to halt all redemption of shares for up to 10 days out of a 90 day period. With anemic yields and these potential barriers to redeeming your shares when you require cash, money markets funds are not looking all that attractive.
Social Security Disability Fund Teeters on Brink of Broke (ThinkAdvisor)
The chief actuary for the Social Security Administration, Stephen Goss, recently warned the Senate Finance Committee that the Social Security Disability Insurance Trust Fund (a separate entity from the Social Security Old Age and Survivor’s Insurance Trust Fund, the one that pays retirement benefits) is on the verge of running out of reserve assets. Goss reports that by the end of 2016, the Disability Insurance fund will have depleted its assets.
To help visualize the depletion of the Disability Insurance fund, I pulled a graph from the Annual Trustees Report for 2013 for Social Security and Medicare. The Disability Insurance fund is the blue dotted line in the graph featured above. As you can see Social Security is fully funded until around 2035, but the Disability Fund cannot completely pay its outlays as of 2016, when it will only be able to pay about 80% of promised benefits.
In the past, Congress has kicked the can down the road by reallocating funds from the Social Security fund to the Disability fund. It’s likely that something similar will happen once again, which will simply cover the symptoms but only exacerbate the reserves problem for the Old-Age and Survivors Insurance Trust Fund even more.
Barclays Files to Dismiss New York Lawsuit Against ‘Dark Pool’ (Business Insider)
Barclay’s filed a motion on Thursday to dismiss the New York attorney general’s lawsuit over the bank’s conduct with regards to high frequency traders within its dark pools. I mentioned the original filing of the suit in this post, which includes a high-level summary of the lawsuit.
SEC Approves FINRA-Backed Expungement Rule (Financial Planning)
Another SEC ruling has approved a FINRA backed proposal that prevents brokers from purging customer complaints from FINRA’s BrokerCheck as part of arbitration settlements.
This new rule increases the transparency of BrokerCheck. This rule helps ensure that BrokerCheck becomes more useful to consumers who wish to avoid dealings with advisors who have multiple complaints filed against them. “Unfounded” complaints can still be disputed through court orders. Previously 97% of arbitration cases lead to the expungement of the original complaint from the BrokerCheck system.
Billion-Dollar Billy Beane (FiveThirtyEight)
This article is not a financial article but it is a fun read for those of you who enjoyed Brad Pitt’s performance in Moneyball as the Oakland A’s General Manager, Billy Beane. The author uses some fun statistical analysis and charts to show just how financially valuable Billy Beane would have been to a team like the Boston Red Sox.