Impact of New Money Market Rules

Securities & Exchange Commission – Passed New Rules 

When money became a product, the money market became an element for the financial market for possessions for the purpose of lending, in short term borrowing, buying and selling with original maturities for a year or less and trading in money market could be done over the counter.

Securities and Exchange Commission – SEC had passed some new rules which governed money market fund in mid-2014 and these rules were designed to contest the probable problems on liquidity if the economy would envisage a financial meltdown like the 2008-2009. Usually the money market fund is where several investors tend to invest their funds and the shares of the funds have a constant $1 per share value and there was instant liquidity.

 According to the new rules there is some change to these attributes for some money market funds. Some money market funds will be having floating net asset value – NAV when the new rules are applicable and these funds will not be priced at the prevailing $1 per share. This is turn will have an impact on the institutional municipal money market funds as well as institutional prime/general purpose money funds only while retail money market funds will not be affected by this rule.

Two Kinds of Liquidity Fee

The new rule is for two kinds of liquidity fee which could levy rigid fees on redemptions especially those conventionally low return vehicles and if the weekly liquid assets of money market funds tend to fall below 30% of the total fund’s assets, the board of directors connected with the funds could impose a 2% fee on redemption of funds.

Should the money market fund’s weekly liquid resources tend to fall below 10% of the total assets of the fund, then the redemptions could be subject to a 1% redemption fee if the board of directors vote otherwise. This new rule is then applicable to both the institutional as well as retail municipal and prime/general purpose money market funds.

If the money market fund’s liquid assets fall below 30% on the whole assets, the funds’ board of directors are permitted to vote on whether to restrict all fund redemption for 10 days and agreed that money market funds could be used for their low investment risk and liquidity, the burden of redemption could be difficult for several investors.

Vanguard’s Ultra Short Term Bond Fund 

After the announcement of the new rules, some new short term bond mutual funds have come up which include Vanguard’s Ultra Short-Term Bond Fund – VUBFX, but according to Vanguard, the launch was not connected to new money market fund rules. Higher yield than money market funds are offered in short term bond funds though they also have additional market risk depending on their underlying holdings.

The average ultra-short term bond funds, according to Morningstar Inc. – MORN, lost 7.89% in 2008 and financial advisors could be wise in reminding clients intending to seek more yields on the potential risks of presuming that these funds could be a substitute for money market funds. In an effort in preventing a collapse of financial system in case of another economic meltdown, as the financial crisis which occurred in 2008-2009, the SEC have approved several changes in the rules that govern money market funds.

While some will have redemption fees levied on shareholders in some cases and others will see their NAV enabled to fluctuate from the traditional stable $1 per share, these changes will compel investors as well as financial advisors to reconsider how to use the money market funds while at the same time look for other alternatives.

Global Crisis – Threat for Several Financial Institutions

Global crisis had created a threat for several financial institutions during the last few years. A pioneering peer to peer foreign exchange – FX, fintech startup - Kantox which is a platform for businesses, grew 250% in 2014 achieving its biggest transaction earlier, when one of its clients transferred US$29 million through the online platform. What could have been the secret of its success inspite of the uncertainty of global economic?

While the import-export businesses lost faith on traditional banks, Kantox provided an alternative solution in managing foreign exchange risks via a business model which was based on transparency. While businesses were on the lookout for no-banking solutions, this fintech startup became a feasible alternative as an online managing platform as well as a way to reduce costs, making the procedure an easier one.

As per the Co-founder and CEO, Philippe Gelis, the foreign exchange market had a setback from several transparency issues and was in need of urgent restructure. Gelis together with his partner Antonio Rami worked as a team as consultants in Deloitte and planned to develop an alternate option.

Kantox – Tools to Manage Currency Exchanges

Gelis had commented that `the aim was to be trusted as a competitive and transparent platform by financial directors and they wanted to provide them a different option’. The tools were provided by Kantox for the clients to enable them with improvements in managing their currency exchanges as well as consulting services from professionals.

Kantox presently transfer funds to 1,000 clients all across 18 countries in over 25 currencies. Gelis explains that `at the moment, growth is their goal and knowing now the needs of the clients, they have a clearer idea of the market and how to differentiate from their competitors’.

Gelis finds it important to be ambitious and a race for growing up. He states that `when one is immersed in business, they have the feeling that the developing process is long and one would want to grow faster though the process needs time’. Though the fintech space is still in its early development, there are several potential clients for new fintech startup and new business options like Kantox who are striving to compete with banks in foreign currency exchange.

Driving Down Cost/Administration Time

Kantox originated out of the idea of dis-intermediating banks as well as brokers from the foreign exchange procedures, driving down cost and administration time for companies and according to Gelis, instead of trading via a bank or broker, with this fintech startup, two trusted companies tend to trade with each other directly with transparency.

His challenge is to reach 20 percent of the market share in the next ten or twenty years and that `the fintech sector has been changing fast with new business solutions to be included in the whole updated structure. He further states that they are educating the market on these new solutions where the sector is monopolized by banks who own 99 percent of the market and their business model is quite a new alternative.

He adds that the global crisis largely affected the fintech sector and that they believe it was time to change the finance industry introducing the transparency, fairness and efficiency. These changes could come up though it would have a profound positive consequence on the global finance industry as well as economy and technological innovation is and will continue to be the vehicle for this change.

Gold Snaps Seven-Day Rally

Gold Dropped – Investors opt for Uncertain Equity Assets

Gold dropped on Friday as investors opted for the uncertain equity assets after some mixed economic data from U.S and the fluctuating dollar. However, gold future gained 1% for the week and the favourite metal continued making strong gains because of its appeal for the past two days even though global equity markets seemed low amidst the confusion in Yemen.

Earlier gold rallied after officials from Federal Reserve officials’ commented that U.S interest rates would stay at zero for some time till September. In the meantime, focus of the investors was on the comments from the Fed Chief Janet Yellen who planned to address the Federal Reserve Bank of San Francisco Conference and would be delivering a note entitled, `The New Normal for Monetary Policy,’ before the close of markets.

Ms Yellen’s speech is planned at 7.45 pm GMT where traders would be listening for some indication on when the Fed would start tightening monetary policy. According to Senior Manager Ole Hansen of Saxo Bank, he states that `Yellen has been accused of being too dovish and probably she wants to react by making her speech sound a little less dovish’.

Adjustment from Ultra-Loss Monetary Policy

The Presidents of the St. Louis Fed and Atlanta Fed, at separate events on Thursday said an adjustment away from ultra-loose monetary policy would be needed due to US economy’s improvement since 2007-09 financial crises. By 3.24 pm GMT, spot gold has eased 0.5% to $1,197.70 an ounce and the metal increased to 2% on Thursday to its highest since March 2 at $1,219.40 due to reaction to tensions in the Middle East.

The gold futures of US fell from $7.90 to $1,196.70 an ounce for April delivery. On Wednesday, Saudi Arabia and its associates had launched air strikes in Yemen rattling broader markets and backing gold which is usually seen as an assurance against any risk. Julius Baer, head of commodity research Norbert Ruecker commented that `Geopolitics has never been something which could set a trend in gold prices; it only causes a short term deviation from the existing trend’.

Inspite of the Friday’s losses, gold was back on track to finish the week up at 1.3% after its seven day rally and the metal’s longest winning stretch since August 2012.

Holdings Dropped by 6 Tonnes

Gold showed gains after the Fed signalled caution at its policy meeting last week on the pace of interest rate increase prompting the dollar to drop from multiyear high and a violent rate rise path could affect the demand for gold which is a non-interest paying asset.Caution by the investor was obvious as SPDR Gold Trust, which is the world’s largest gold backed exchange traded fund, post outflows continued and holdings dropped nearly by 6 tonnes on Thursday to 737.24 tonnes which was the lowest since January.

As physical demand all over Asia slowed down, the long rally in prices discouraged most of the buyers. Palladium had lost by 3% to a two month decrease of $743.47 an ounce and platinum was low by 1.2% at $1,139.99 an ounce while silver dropped by 0.6% to $16.97 an ounce.

China-Backed AIIB Investment Bank

Australia/Netherlands/Russia Joined AIIB

Australia, Netherlands and Russia, became the latest three countries who have joined the China led Asian Infrastructure Investment Bank – AIIB adding power to an institution which is seen as enhancing China’s regional as well as global influence. Taiwan will also be submitting an application to join the Beijing led Asian Infrastructure Investment Bank in spite of historical hostility and absence of formal diplomatic relation between them.

In a recent revealed statement, Charles Chen, Taiwan presidential office spokesman informed that joining the AIIB would help Taiwan in its efforts at regional economic amalgamation as well as raise the possibility of linking other multinational bodies. It is unclear whether Beijing would be accepting Taiwan’s application in joining the AIIB.

The bank is envisaged as a significant obstacle to U.S. efforts, in extending its influence in the Asia-Pacific region and also in balancing the growing financial influence and assertiveness of China. Several countries inclusive of United State fail to recognize Taiwan due to pressure from China. Taiwan does not seem to be a member of the United Nations, the World Bank or the International Monetary Fund.

Several Countries to Join 

The AIIB seen as a challenge to the prevailing institutions, the World Bank and Asian Development Bank, has drawn a reply from the United State even though European U.S. Supporters whichinclude Britain, France, Germany and Italy had earlier announced that they would join the bank.

Turkey and South Korea have also informed that they too would be joining in while Brazil, one of China’s top trading partner informed that it would sign up and that there were no conditions set. The office of President DilmaRousseff mentioned in a statement that `Brazil is very interested in participating in this initiative’.

Igor Shuvalov, Russian First Deputy Prime Minister, according to an official Xinhua news agency, stated recently at a forum in Boao on the southern Chinese island of Hainan, that the country plans to join AIIB. At the same forum, according to Xinhua, Mathias Cormann, Australian Finance Minister informed that the country was planning to apply as a founder member which was later confirmed on the news agency that Georgia had also made an application.

Deadline Set for Joining as Founding Member - AIIB

Britain and Switzerland had been formally accepted as founding members of the AIIB, a day after Brazil had accepted China’s invitation to join in, according to China’s Finance Ministry. It also informed that Austria also had applied to join and had submitted their documents to China.

Taiwan’s statement has reported that China had set Tuesday as a deadline in becoming a founding member of the AIIB, encouraging a rush of nations which includes Russia, Australia, Denmark and Netherlands to indicate their intentions to join. In all 42 countries have applied.

The United States has advised the countries to think carefully about joining the AIIB till it shows adequate standards of governance as well as environmental and social safeguards. China sees Taiwan as a rebel province and has not ruled out the use of forces in bringing it under its control. Since Taiwan’s present president Ma Ying-jeou took charge in 2008, the enmity had deteriorated considerably and the two parties have signed several deals of trade and investment.

Credit Cards

Credit Card – A form of Borrowing

Credit card is one form of borrowing which involves some charges and its terms and condition could affect the overall cost. It is advisable to do some research on the terms and the fees before any agreement to open a credit or a charge card account.

 Being unaware of the terms and their charges could leave the user disappointed when faced with the overall cost they may encounter. At times shopping with the credit card could save you money on interest and fees. Issuers of credit card tend to have wide scope in charging interest though they should brief the customers on the interest rate. It is also essential for the customer to read the fine print in the original credit card agreement as well as in any supplemental copy.

As per the federal law, interest rate tends to increase on existing balances under some conditions like when a promotional rate may end and there is a variable rate or when the cardholder tends to make a late payment. The interest rate on new transaction may also increase but after the first year. If the customer is faced with an issue regarding the credit card, they should first try resolving the same directly with store or the credit card company or the financial institution.

Consumer Financial Protection Bureau

If the matter is not resolved, they could file a complaint with the Consumer Financial Protection Bureau – CFPB which presently accepts complaints with regards to credit card issues and take them up either through phone or through their site at https://help.consumerfinance.gov/app/ask_cc_complaint. For any guidance regarding credit card debt, fees and high interest rates, customers could contact a credit counselling service or debt Management Company who can render the necessary guidance and support. They could also provide practical as well as legal financial advice with regards to the use of credit. Beside this, they could also make attempts on renegotiate the terms of the credit agreements and make arrangement to pay off the debts. One needs to check on the debt management company though all arenot the legitimate ones.

Credit Card Eligibility Calculator

Some of the following credit card eligibility calculator could be helpful to individuals such as:


• Bad Credit – For bad credit scorers- Those who apply for credit card and have been rejected need not go in for the same. They should check on cards that would fit their profile and try to rebuild credit rating by using the top `bad credit’ credit card and ensure to pay in a timely manner
• Interest free spending- 0% Spending – If the need to borrow for a purchase arises, the right choice needs to be taken, credit cards are far cheaper than loans though if misused it could add debts which may be difficult to pay off
• Balance transfers – Cut existing debt costs – Shifting the prevailing credit card or store card debts to new balance transfer card could save much wherein the balance transfers when a credit card could pay off debts on other credit or store cards. Thus one owes the new card though at a lower rate which means they can be debt free much quicker.
• Travel Money – Several cards add 3% cost than the banks to the exchange rates which can be avoided by a specialist card that does not add this percentage and you get a good exchange rate. This could be used for overseas spending though one should bear in mind to repay in full to avoid the additional burden of interest.
• Balance transfers and spending – All-rounders - Most of the banks offer introduction deals to attract new customers with cards that could be either good balance transfer deals or low rates on new spending. All-rounder cards offer cheap intro rates for balance transfers as well as purchases and if a person needs to move debts from an existing expensive card as well as need to use a card for purchase, they could be checked since they cannot damage the credit score with additional applications.
• Cash back – pays when spend – The cash-back credit card tends to pay you each time you make a purchase where top cards tend to pay around 5% introductory cash-back while other offer 3% on fuel and transport spending. Besides these, there is also other good fee free; cash reward cards which are like cash-back cards offered.
• 0% Cash in Bank account – Money Transfer – The money transfer credit card enables the customer to pay money from their new credit card in the current account with a small fee wherein they get a long interest free period in repaying the debt. Should the customer fail to repay the same within the given time period, they are charged with a high interest rate.
• Get Air miles while spending – Airline credit cards are an addition of regular flyer programs and one could earn points or miles on spending as well as earn bonus for signing up. The miles earned from spending could be added with those earned from flying or by other credit card reward schemes like converting Tesco Clubcard points.