Money Market Funds

FXD Markets is a broker-dealer to the world’s largest money market fund providers.

Investors are faced with new considerations related to sub-optimal returns and counterparty risk, with finance and treasury teams diversifying their short-term cash holdings from deposits to money market funds (MMFs).

Money market funds are an active alternative to bank deposits that are designed to protect capital and maintain liquidity while providing competitive returns. They are inherently diversified and considered very secure because they are assigned AAA credit ratings from the main rating agencies, making them a staple for investors that are holding excess cash and liquidity.
These funds satisfy the three pillars of cash management – risk, liquidity, and return and will also consider

Environmental Social and Governance (ESG) factors, allowing investors to participate in a more liquid, diverse and high-quality portfolio than if they were to invest individually.

We have established relationships with the fund managers and investment teams offering additional distribution of their money market funds to investors with short-term cash surpluses. Our investors benefit from our independent, objective, and informed position while also gaining access to the fund managers’ infrastructure, technology and investment expertise, for the efficient oversight of their excess cash and liquidity.

An Introduction to Money Market Funds

Stable-NAV money market funds are well-established tools for investors to gain access to the money markets. They are structured as open-ended investment companies that are owned by their shareholders (i.e. the investors) and they generate income by investing in highly liquid and highly rated money market securities, such as government debt, certificates of deposit and commercial paper.

Types of stable-NAV Money Market Funds

Low Volatility Net Asset Value (LVNAV) Short Term MMFs are invested in highly liquid and highly rate money market securities. Units in the fund are purchased or redeemed at a constant price so long as the value of the underlying assets do not deviate by more than 0.20% (20bps) from par (i.e. 1.00).

Public Debt Constant Net Asset Value (CNAV) Short-Term MMFs must invest 99.5% in government assets. Units in the fund are purchased or redeemed at a constant price of 1.00.

Comparing MMFs and Bank Deposits

When compared to bank deposits, money market funds offer the following benefits:

Segregated Assets – MMFs are structured as segregated entities (typically investment companies) that own the underlying assets but which are held separately from the asset manager by an independent custodian. By contrast, bank deposits are unsecured liabilities on a bank’s balance sheet.

Diversified Counterparty Risk – MMFs are inherently diversified by virtue of investing in a broad portfolio of underlying assets. As a result, such MMFs have better diversification than a single bank deposit, which presents single counterparty risk.

Liquidity Benefits – MMFs invest in a large proportion of highly liquid securities to offer investors same-day (T+0) or next-day (T+1) liquidity. Unlike some bank deposits, redemptions can be carried out with no minimum transaction size, lock-up period, or penalties.

Key Features of Bank Deposits and MMFs

	MMFs	Bank Deposits
Risk	MMFs seek to maintain a stable net asset value (NAV) per share MMFs reduce counterparty risk by holding portfolios of highly liquid and highly rated money market securities with a diverse range of counterparties Assets are held of balance sheet with an independent third party depositary	Deposits may be concentrated with a single Bank Deposits represent an unsecured liability on the bank’s balance sheet; therefore, in the event of default depositors would be subject to general bankruptcy proceedings
Return	MMFs allow investors to benefit from active portfolio management to maximise return	Rates offered on deposits are subject to banks funding needs, meaning that banks may choose to offer yields lower than the Central Banks be influenced by the relationship
Liquidity	Offers same day (T+0) or next day (T+1) liquidity Redemptions can be carried out with no minimum transaction size, lock up period, or penalties	Bank deposit may have different maturity ladders with lock up periods, restrictions or early withdrawal penalties Bank deposits may have restrictions or penalties on redemptions prior to maturity

Have you reviewed your Treasury Policy/ Investment Policy?

Depositors that choose to invest in money market funds usually seek Board or Treasury Committee approval which could involve amending their treasury policy/ investment policy which may be subject to restrictions. It is important to review your policy’s approved list of investments and if required, our team can provide you with the information needed to help you consider which money market funds to use and prepare the necessary documentation for the approval process.

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Risk and Reward Profile

For more detailed information on the risks associated with an investment in the money market funds, please refer to the ‘Key Investor Information” and discuss with a member of the team.

FXD Markets is an FCA registered trading name of Kyte Broking Limited. Kyte Broking Limited registered in England & Wales (No. 02781314) is authorised and regulated by the Financial Conduct Authority (“FCA”) under FRN: 174863 with its registered office at 55 Baker Street, London, W1U 8EW. Kyte Broking Limited is a member of the National Futures Association (“NFA”) under NFA ID: 0288293.