The US Treasury Department said on Monday its temporary guarantee programme for money market mutual funds for assets held as of September 19 was now in effect for at least three months. The Treasury said each fund regulated by the Securities and Exchange Commission under rule 2a-7 that maintains a stable share price of $1 can now decide whether to participate in the programme.
Money market mutual fund shares acquired after September 19, when the Treasury announced the plan, will not be guaranteed under the programme. To receive the government guarantee, participating money market mutual funds that had a net asset value of at least $0.9975 per share on September 19 must pay a fee of 1 basis point per share to the Treasury. Those with a net asset value below $0.995 on September 19 are not eligible for the programme, and those between $0.995 and $0.9975 on that date must pay a 1.5 basis-point fee.
The Treasury created the programme to try to stem a massive run on some $3.4 trillion in money market mutual fund assets after one major fund fell below $1 per share - a phenomenon known as "breaking the buck". The Treasury programme guarantees a participating fund that funds held on September 19 will remain valued at $1 per share if they break the buck.
The programme will use about $50 billion from the Exchange Stabilisation Fund, which was created during the Great Depression to help stabilise the dollar. US Treasury Secretary Henry Paulson will review the programme after a three-month term to determine whether to extend it. Funds will have to pay an additional fee to renew their participation if the programme is extended.