Staff Papers and Economic Analyses

Staff Papers and Economic Analyses

Working papers in the series were prepared in full or in part by SEC staff economists in the Division of Economic and Risk Analysis. They investigate a broad range of issues relevant to the Commission's mission and are disseminated to stimulate discussion and critical comment to the benefit of the public. DERA Working Papers are preliminary materials that have not been approved by the Commission and reflect only the views of the author(s).

White papers and economic analyses are prepared by SEC staff in the course of rulemaking and other Commission initiatives. Some of these materials are available elsewhere on the Commission website.
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Date Title Category
March 20, 2014 OTC Trading: Description of Non-ATS OTC Trading in National Market System Stocks (pdf)

White Papers
Jan. 24, 2014 The Economic Implications of Money Market Fund Capital Buffers (pdf)
Craig M. Lewisnew material
DERA Working Paper 2014-01

Show Abstract Abstract

This paper develops an affine term structure for the valuation of money market funds. This valuation framework is then used to consider the economic implications of funds that are supported by a capital buffer. The main findings are twofold. First, relatively small capital buffers are capable of absorbing daily fluctuations between a fund's shadow price and its amortized cost. For example, a fund with a capital buffer of 60 basis points can absorb most day-to-day price risk. The ability to absorb large scale defaults, however, would require a significantly larger and more costly buffer. Second, because a buffer is designed to absorb credit risk, capital providers demand compensation for bearing this risk. The analysis shows that, after compensating capital buffer investors for absorbing credit risk, the returns available to money market fund shareholders are comparable to default free securities, which would significantly reduce the utility of the product to investors.
Working Papers
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Date: Jan. 24, 2014

Title: The Economic Implications of Money Market Fund Capital Buffers

Category: Working Papers