Fidelity fought Washington over money market funds — and won

The Boston Globe has the story Fidelity fought Washington over money market funds — and won.

The rules will allow money market managers to slam down a “gate’’ in times of distress to temporarily block investors from cashing out their shares. Mutual fund executives supported that concept.

“It will stop the run at the first fund, but if you are sitting at any of the other funds, you are going to want to get out before the gates are imposed,’’ said Eric Rosengren, president of the Federal Reserve Bank of Boston.

Harvard Business School professor David Scharfstein, an influential figure in the debate, said the result of the new rules overall is underlying risks have not changed that much:

“There’s still an incentive to get out,” he said, “before there’s a fire sale.”

The part of the story that The Boston Globe left out is that Fidelity has quietly taken steps to adapt to the reality that professor David Scharfstein mentioned above.

One feature that Fidelity has added to their money management services for their customers is the ability to have Fidelity automatically sweep your excess money market funds into insured bank deposits. When you want to spend this money, they will automatically pull the money from the banks to which they have swept the money, and put it into your account where you can do what you want with it – buy an investment vehicle or make a payment to someone else.

I always wondered if this new service was driven by the problems that The Boston Globe article described about the money market funds.

The challenge that I am going to finally have to come to grips with is figuring out how to make my money tracking software better handle these sweep transactions. In trying to make this fix, I recently introduced a substantial discrepancy in what Fidelity knows I have and what my software thinks I have. Fortunately Fidelity knows I have more money than my software thinks I have.

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