Pox party

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Pox_party

Pox parties, also known as flu parties, are social activities in which children are deliberately exposed to infectious diseases such as chickenpox. Such parties originated to "get it over with" before vaccines were available for a particular illness or because childhood infection might be less severe than infection during adulthood, according to proponents. For example, measles is more dangerous to adults than to children over five years old. Deliberately exposing people to diseases has since been discouraged by public health officials in favor of vaccination, which has caused a decline in the practice of pox parties, although flu parties saw a resurgence in the early 2010s.

Another, more modern, method of intentional contagion involves shipping infectious material. In many parts of the world, shipping infectious items is illegal or tightly regulated.

Effectiveness and risk

Parents who expose their children to varicella zoster virus in this manner often do so out of the belief that acquiring immunity to chickenpox via infection is safer and more effective than receiving a vaccination. Similar ideas have been applied to other diseases such as measles. Pediatricians have warned against holding pox parties, however, citing dangers arising from possible complications associated with chickenpox, such as encephalitis, chickenpox-associated pneumonia, and invasive group A strep. These serious complications (e.g., brain damage or death) are vastly more likely than vaccine adverse events. Before the chickenpox vaccine became available, 100 to 150 children in the U.S. died from chickenpox annually. In the UK, chickenpox vaccinations are not routine, and around 25 people die a year from the disease, with 80% of victims being adults, in the late 1990s. The chickenpox vaccine is now recommended by health officials, citing vastly superior safety when compared with infection.

Some parents have attempted to collect infectious materials, such as saliva, licked lollipops, or other infected items from people who claimed to have children infected with chickenpox. Others use social networking services to make contact with these strangers. The unknown person then mails the potentially infectious matter to the parent, who would then give it to their child in the hope that the child will become infected.

These practices are unlikely to reliably transmit the chickenpox virus because varicella zoster cannot survive for long on the surface of such items. The virus can, however, transmit other diseases, including hepatitis B, group A streptococcal infection, and staphylococcal infections — dangerous diseases to which the parents never intended to expose their children. Additionally, in the United States, deliberately sending infectious matter through the U.S. Postal Service is illegal.

While chickenpox parties are still held today, they are far less common than before the chickenpox vaccine was introduced.

History

In the United States, chickenpox parties were popularized before the introduction of the varicella vaccine in 1995. Children were also sometimes intentionally exposed to other common childhood illnesses, such as mumps and measles. Before vaccines for these infections became available, parents regarded these diseases as almost inevitable.

Flu parties

During the 2009 swine flu pandemic in Canada, doctors noted an increase in what was termed flu parties or flu flings. These gatherings, as with the pox parties, were designed explicitly to allow a parent's children to contract the "swine flu" influenza virus. Researchers such as Dr. Michael Gardam noted that because the pandemic was caused by a flu subtype to which very few people were previously exposed, parents would be just as likely to contract the disease and further its spread. Although these events were heavily discussed in the media, very few were confirmed to have happened.

COVID-19 party

A COVID-19 party (also called coronavirus party, corona party, and lockdown party) is a gathering held with the intention of catching or spreading COVID-19. It is a type of pox party where the intentional spread of disease is chosen to build up post-infection immunity. Parties have been reported to occur during the omicron wave, due to the belief that omicron causes only mild infection. Experts caution that infection with COVID runs the risk of hospitalization, and increasingly common side effects such as MIS-C and long COVID.

A number of news reports in the United States have suggested that parties have occurred with this intention early in the pandemic. However, such reports appear to involve sensational and unsubstantiated media coverage or misleading headlines which misrepresent the content of an article. Such stories have been compared to urban legends.

In the Netherlands, the term "coronavirus party" and other similar terms may refer to a party that is organized during the COVID-19 pandemic but without any intention of spreading the virus. As the party occurs during the COVID-19 pandemic, it may involve breaking existing regulations and restrictions to prevent COVID-19 infections (i.e., on people gatherings).

History

Street party in Copenhagen, Denmark, with police (middle) telling people to leave due to restrictions

In March 2020 Andy Beshear, the governor of Kentucky, reported that young people were taking part in parties and later testing positive for COVID-19. "The partygoers intentionally got together 'thinking they were invincible' and purposely defying state guidance to practice social distancing," he said. A CNN headline on 25 March 2020 stated, "A group of young adults held a coronavirus party in Kentucky to defy orders to socially distance. Now one of them has coronavirus." On the same day NPR published the headline "Kentucky Has 39 New Cases; 1 Person Attended A 'Coronavirus Party'". Both headlines misrepresented the content of the article and the quotes they used from Beshear who did not mention intentional parties for catching COVID-19, but rather that young people were attending parties and becoming sick with COVID-19.

On 6 May, The Seattle Times reported that Meghan DeBold, director of the Department of Community Health in Walla Walla, Washington, said that contact tracing had revealed people wanting to get sick with COVID-19 and get it over with had attended COVID parties. DeBold is quoted as saying "We ask about contacts, and there are 25 people because: 'We were at a COVID party'". An opinion piece for The New York Times by epidemiologist Greta Bauer on 8 April 2020 said she had heard "rumblings about people ... hosting a version of 'chickenpox parties'... to catch the virus". Rolling Stone states that Bauer did not cite "direct evidence of the existence of these parties." The New York Times reported on 6 May 2020 that stories such as the Walla Walla Covid Party "may have been more innocent gatherings" and county health officials retracted their statements.

On 23 June, Carsyn Leigh Davis was said to have died from COVID-19 at the age of 17 after her mother took her to a COVID party at her church, despite Carsyn having a history of health issues, including cancer. However, according to the coroner's report, there is no mention of a COVID party but rather a church function with 100 children where she did not wear a mask and where social distancing protocols were not followed. According to David Gorski, writing for Science-Based Medicine, the church party was called a "Release Party" and there is no evidence that the party was held so that people could intentionally catch COVID-19.

Response

Some news agencies consider COVID-19 parties to be a myth. Rolling Stone called "shaming people on the internet for not properly socially distancing" the favorite new American pastime. They state that these headlines are meant to be virally shared, and they considered the reality to be that young people had simply attended parties where they caught COVID-19, rather than deliberately attending them to contract COVID-19. Rolling Stone attributed the popularity of the stories to "generational animosity" and said that the coronavirus party stories "gives people cooped up in their homes a reason to pat themselves on the back and congratulate themselves for their own sacrifices". The Seattle Times article from Walla Walla backtracked the day after publishing their COVID-19 party story by stating they may not have been accurate.

Wired criticized reports on CNN and others of supposed college students in Tuscaloosa, Alabama throwing parties with infected guests then betting on the contagion that ensues. "They put money in a pot and they try to get Covid," said City Council member Sonya McKinstry, who was the story's lone source. "Whoever gets Covid-19 first gets the pot. It makes no sense." Wired says that these stories spread like a game of telephone with "loose talk from public officials and disgracefully sloppy journalism". "It is, of course, technically impossible to rule out the existence of Covid-19 parties. Maybe somewhere in this vast and complex nation, some foolish people are getting infected on purpose. It is also possible that the miasma of media coverage will coalesce into a vector of its own, inspiring Covid parties that otherwise would not have happened. But so far there's no hard evidence that even a single one has taken place—just a recurring cycle of breathless, unsubstantiated media coverage."

Investigator Benjamin Radford researched the claims from the media and stated that there was nothing new to these stories, and that the folklore world has seen stories of people believing that being inoculated against smallpox may turn people into cows. These stories cycle through social media, and include "poisoned Halloween candy, suicide-inducing online games, Satanists, caravans of diseased migrants, evil clowns, and many others." Other childhood diseases such as chickenpox and measles in years before vaccines to prevent these illnesses, some parents would hold 'pox parties' which Radford claims are still "often promoted by anti-vaccination groups". "Assuming you have a willing and potentially infectious patient (who's not bedridden or in a hospital)" holding a COVID-19 party would be problematic for many reasons, including not knowing if someone has COVID-19 or the flu as well as not knowing a person's viral load, according to Radford. He described the entire premise of the parties as "dubious".

All stories reported in the media had "all the typical ingredients of unfounded moral panic rumors", according to Radford. This includes teachers, police, school districts, governors "who publicize the information out of an abundance of caution. Journalists eagerly run with a sensational story, and there's little if any sober or skeptical follow-up". On 10 July 2020, a WOAI-TV station from San Antonio, Texas ran a story interviewing the Chief Medical Officer of Methodist Healthcare, Dr. Jane Appleby, who according to WOAI said she had heard from someone that a patient told their nurse right before dying that they had attended a COVID party to see if the virus was real or not, and now they regretted attending the party. Radford considers the stories "classic folklore (a friend-of-a-friend or FOAF) tale presented in news media as fact", noting that they were often anonymous third-hand story with no verifiable names or other details. He described the "deathbed conversation" ending to the story as being a "classic legend trope".

Money market

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Social_distancing

 
The money market is a component of the economy that provides short-term funds. The money market deals in short-term loans, generally for a period of a year or less.

As short-term securities became a commodity, the money market became a component of the financial market for assets involved in short-term borrowing, lending, buying and selling with original maturities of one year or less. Trading in money markets is done over the counter and is wholesale.

There are several money market instruments in most Western countries, including treasury bills, commercial paper, banker's acceptances, deposits, certificates of deposit, bills of exchange, repurchase agreements, federal funds, and short-lived mortgage- and asset-backed securities. The instruments bear differing maturities, currencies, credit risks, and structures. A market can be described as a money market if it is composed of highly liquid, short-term assets. Money market funds typically invest in government securities, certificates of deposit, commercial paper of companies, and other highly liquid, low-risk securities. The four most relevant types of money are commodity money, fiat money, fiduciary money (cheques, banknotes), and commercial bank money. Commodity money relies on intrinsically valuable commodities that act as a medium of exchange. Fiat money, on the other hand, gets its value from a government order.

Money markets, which provide liquidity for the global financial system including for capital markets, are part of the broader system of financial markets.

Participants

The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Participants borrow and lend for short periods, typically up to twelve months. Money market trades in short-term financial instruments commonly called "paper". This contrasts with the capital market for longer-term funding, which is supplied by bonds and equity.

The heart of the money market revolves around the concept of interbank lending, where banks lend and borrow from each other using financial instruments such as commercial paper and repurchase agreements. These instruments are often valued with reference to the London Interbank Offered Rate (LIBOR) for the specific term and currency.

Finance companies usually secure their funding by issuing substantial amounts of asset-backed commercial paper (ABCP). This paper is backed by the commitment of valuable assets placed into an ABCP conduit. These assets can include things like auto loans, credit card receivables, residential or commercial mortgage loans, mortgage-backed securities, and other financial assets. Some large, financially stable corporations even issue their own commercial paper, while others prefer to have banks issue it on their behalf.

In the United States, federal, state and local governments all issue paper to meet funding needs. States and local governments issue municipal paper, while the U.S. Treasury issues Treasury bills to fund the U.S. public debt:

• Trading companies often purchase bankers' acceptances to tender for payment to overseas suppliers.
• Retail and institutional money market funds
• Banks
• Central banks
• Cash management programs
• Merchant banks

Functions

Money markets serve five functions—to finance trade, finance industry, invest profitably, enhance commercial banks' self-sufficiency, and lubricate central bank policies.

Financing trade

The money market plays a crucial role in financing domestic and international trade. Commercial finance is made available to the traders through bills of exchange, which are discounted by the bill market. The acceptance houses and discount markets help in financing foreign trade.

Financing industry

The money market contributes to the growth of industries in two ways:

• They help industries secure short-term loans to meet their working capital requirements through the system of finance bills, commercial papers, etc.
• Industries generally need long-term loans, which are provided in the capital market. However, the capital market depends upon the nature of and the conditions in the money market. The short-term interest rates of the money market influence the long-term interest rates of the capital market. Thus, money market indirectly helps the industries through its link with and influence on long-term capital market.

Profitable investments

The money market enables commercial banks to use their excess reserves in profitable investments. The main objective of commercial banks is to earn income from its reserves as well as maintain liquidity to meet the uncertain cash demand of its depositors. In the money market, the excess reserves of commercial banks are invested in near money assets (e.g., short-term bills of exchange), which are easily converted into cash. Thus, commercial banks earn profits without sacrificing liquidity.

Self-sufficiency of commercial banks

Developed money markets help commercial banks to become self-sufficient. In an emergency, when commercial banks have scarcity of funds, they need not approach the central bank and borrow at a higher interest rate. They can instead meet their requirements by recalling their old short-run loans from the money market.

Help to central bank

Though the central bank can function and influence the banking system in the absence of a money market, the existence of a developed money market smooths the functioning and increases the efficiency of the central bank.

Money markets help central banks in two ways:

• Short-run interest rates serve as an indicator of the monetary and banking conditions in the country and, in this way, guide the central bank to adopt an appropriate banking policy,
• Sensitive and integrated money markets help the central bank secure quick and widespread influence on the sub-markets, thus facilitating effective policy implementation

Instruments

• Certificate of deposit – Time deposit, commonly offered to consumers by banks, thrift institutions, and credit unions.
• Repurchase agreements – Short-term loans—normally for less than one week and frequently for one day—arranged by selling securities to an investor with an agreement to repurchase them at a fixed price on a fixed date.
• Money market mutual funds - short-term investment debt, operated by professional institutions. Money market mutual funds are an investment fund where a number of investors invest their money in mutual fund institutions, and they diversify the funds in various investments.
• Commercial paper – Short term instruments promissory notes issued by company at discount to face value and redeemed at face value
• Eurodollar deposit – Deposits made in U.S. dollars at a bank or bank branch located outside the United States.
• Federal agency short-term securities – In the U.S., short-term securities issued by government sponsored enterprises such as the Farm Credit System, the Federal Home Loan Banks and the Federal National Mortgage Association. Money markets is heavily used function.
• Federal funds – In the U.S., interest-bearing deposits held by banks and other depository institutions at the Federal Reserve; these are immediately available funds that institutions borrow or lend, usually on an overnight basis. They are lent for the federal funds rate.
• Municipal notes – In the U.S., short-term notes issued by municipalities in anticipation of tax receipts or other revenues
• Treasury bills – Short-term debt obligations of a national government that are issued to mature in three to twelve months
• Money funds – Pooled short-maturity, high-quality investments that buy money market securities on behalf of retail or institutional investors
• Foreign exchange swaps – Exchanging a set of currencies in spot date and the reversal of the exchange of currencies at a predetermined time in the future
• Short-lived mortgage- and asset-backed securities

Discount and accrual instruments

There are two types of instruments in the fixed income market that pay interest at maturity, instead of as coupons—discount instruments and accrual instruments. Discount instruments, like repurchase agreements, are issued at a discount of face value, and their maturity value is the face value. Accrual instruments are issued at face value and mature at face value plus interest.

Herd immunity

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Herd_immunity

The top box shows an outbreak in a community in which a few people are infected (shown in red) and the rest are healthy but unimmunized (shown in blue); the illness spreads freely through the population. The middle box shows a population where a small number have been immunized (shown in yellow); those not immunized become infected while those immunized do not. In the bottom box, a large proportion of the population have been immunized; this prevents the illness from spreading significantly, including to unimmunized people. In the first two examples, most healthy unimmunized people become infected, whereas in the bottom example only one fourth of the healthy unimmunized people become infected.

Herd immunity (also called herd effect, community immunity, population immunity, or mass immunity) is a form of indirect protection that applies only to contagious diseases. It occurs when a sufficient percentage of a population has become immune to an infection, whether through previous infections or vaccination, thereby reducing the likelihood of infection for individuals who lack immunity.

Once the herd immunity has been reached, disease gradually disappears from a population and may result in eradication or permanent reduction of infections to zero if achieved worldwide. Herd immunity created via vaccination has contributed to the reduction of many diseases.

Effects

Protection of those without immunity

Some individuals either cannot develop immunity after vaccination or for medical reasons cannot be vaccinated. Newborn infants are too young to receive many vaccines, either for safety reasons or because passive immunity renders the vaccine ineffective. Individuals who are immunodeficient due to HIV/AIDS, lymphoma, leukemia, bone marrow cancer, an impaired spleen, chemotherapy, or radiotherapy may have lost any immunity that they previously had and vaccines may not be of any use for them because of their immunodeficiency.

A portion of those vaccinated may not develop long-term immunity. Vaccine contraindications may prevent certain individuals from being vaccinated. In addition to not being immune, individuals in one of these groups may be at a greater risk of developing complications from infection because of their medical status, but they may still be protected if a large enough percentage of the population is immune.

High levels of immunity in one age group can create herd immunity for other age groups. Vaccinating adults against pertussis reduces pertussis incidence in infants too young to be vaccinated, who are at the greatest risk of complications from the disease. This is especially important for close family members, who account for most of the transmissions to young infants. In the same manner, children receiving vaccines against pneumococcus reduces pneumococcal disease incidence among younger, unvaccinated siblings. Vaccinating children against pneumococcus and rotavirus has had the effect of reducing pneumococcus- and rotavirus-attributable hospitalizations for older children and adults, who do not normally receive these vaccines. Influenza (flu) is more severe in the elderly than in younger age groups, but influenza vaccines lack effectiveness in this demographic due to a waning of the immune system with age. The prioritization of school-age children for seasonal flu immunization, which is more effective than vaccinating the elderly, however, has been shown to create a certain degree of protection for the elderly.

For sexually transmitted infections (STIs), high levels of immunity in heterosexuals of one sex induces herd immunity for heterosexuals of both sexes. Vaccines against STIs that are targeted at heterosexuals of one sex result in significant declines in STIs in heterosexuals of both sexes if vaccine uptake in the target sex is high. Herd immunity from female vaccination does not, however, extend to males who have sex with males. High-risk behaviors make eliminating STIs difficult because, even though most infections occur among individuals with moderate risk, the majority of transmissions occur because of individuals who engage in high-risk behaviors. For this reason, in certain populations it may be necessary to immunize high-risk individuals regardless of sex.

Evolutionary pressure and serotype replacement

Herd immunity itself acts as an evolutionary pressure on pathogens, influencing viral evolution by encouraging the production of novel strains, referred to as escape mutants, that are able to evade herd immunity and infect previously immune individuals. The evolution of new strains is known as serotype replacement, or serotype shifting, as the prevalence of a specific serotype declines due to high levels of immunity, allowing other serotypes to replace it.

At the molecular level, viruses escape from herd immunity through antigenic drift, which is when mutations accumulate in the portion of the viral genome that encodes for the virus's surface antigen, typically a protein of the virus capsid, producing a change in the viral epitope. Alternatively, the reassortment of separate viral genome segments, or antigenic shift, which is more common when there are more strains in circulation, can also produce new serotypes. When either of these occur, memory T cells no longer recognize the virus, so people are not immune to the dominant circulating strain. For both influenza and norovirus, epidemics temporarily induce herd immunity until a new dominant strain emerges, causing successive waves of epidemics. As this evolution poses a challenge to herd immunity, broadly neutralizing antibodies and "universal" vaccines that can provide protection beyond a specific serotype are in development.

Initial vaccines against Streptococcus pneumoniae significantly reduced nasopharyngeal carriage of vaccine serotypes (VTs), including antibiotic-resistant types, only to be entirely offset by increased carriage of non-vaccine serotypes (NVTs). This did not result in a proportionate increase in disease incidence though, since NVTs were less invasive than VTs. Since then, pneumococcal vaccines that provide protection from the emerging serotypes have been introduced and have successfully countered their emergence. The possibility of future shifting remains, so further strategies to deal with this include expansion of VT coverage and the development of vaccines that use either killed whole-cells, which have more surface antigens, or proteins present in multiple serotypes.

Eradication of diseases

A cow with rinderpest in the "milk fever" position, 1982. The last confirmed case of rinderpest occurred in Kenya in 2001, and the disease was officially declared eradicated in 2011.

If herd immunity has been established and maintained in a population for a sufficient time, the disease is inevitably eliminated – no more endemic transmissions occur. If elimination is achieved worldwide and the number of cases is permanently reduced to zero, then a disease can be declared eradicated. Eradication can thus be considered the final effect or end-result of public health initiatives to control the spread of contagious disease. In cases in which herd immunity is compromised, on the contrary, disease outbreaks among the unvaccinated population are likely to occur.

The benefits of eradication include ending all morbidity and mortality caused by the disease, financial savings for individuals, health care providers, and governments, and enabling resources used to control the disease to be used elsewhere. To date, two diseases have been eradicated using herd immunity and vaccination: rinderpest and smallpox. Eradication efforts that rely on herd immunity are currently underway for poliomyelitis, though civil unrest and distrust of modern medicine have made this difficult. Mandatory vaccination may be beneficial to eradication efforts if not enough people choose to get vaccinated.

Free riding

Herd immunity is vulnerable to the free rider problem. Individuals who lack immunity, including those who choose not to vaccinate, free ride off the herd immunity created by those who are immune. As the number of free riders in a population increases, outbreaks of preventable diseases become more common and more severe due to loss of herd immunity. Individuals may choose to free ride or be hesitant to vaccinate for a variety of reasons, including the belief that vaccines are ineffective, or that the risks associated with vaccines are greater than those associated with infection, mistrust of vaccines or public health officials, bandwagoning or groupthinking, social norms or peer pressure, and religious beliefs. Certain individuals are more likely to choose not to receive vaccines if vaccination rates are high enough to convince a person that he or she may not need to be vaccinated, since a sufficient percentage of others are already immune.

Mechanism

Individuals who are immune to a disease act as a barrier in the spread of disease, slowing or preventing the transmission of disease to others. An individual's immunity can be acquired via a natural infection or through artificial means, such as vaccination. When a critical proportion of the population becomes immune, called the herd immunity threshold (HIT) or herd immunity level (HIL), the disease may no longer persist in the population, ceasing to be endemic.

The theoretical basis for herd immunity generally assumes that vaccines induce solid immunity, that populations mix at random, that the pathogen does not evolve to evade the immune response, and that there is no non-human vector for the disease.

Theoretical basis

See also: Basic reproduction number

Further information: Mathematical modelling of infectious diseases

Graph of herd immunity threshold vs basic reproduction number with selected diseases

The critical value, or threshold, in a given population, is the point where the disease reaches an endemic steady state, which means that the infection level is neither growing nor declining exponentially. This threshold can be calculated from the effective reproduction number R_e, which is obtained by taking the product of the basic reproduction number R₀, the average number of new infections caused by each case in an entirely susceptible population that is homogeneous, or well-mixed, meaning each individual is equally likely to come into contact with any other susceptible individual in the population, and S, the proportion of the population who are susceptible to infection, and setting this product to be equal to 1:

${\displaystyle R_0\cdot S=1.}$

S can be rewritten as (1 − p), where p is the proportion of the population that is immune so that p + S equals one. Then, the equation can be rearranged to place p by itself as follows:

${\displaystyle R_0\cdot (1-p)=1,}$

${\displaystyle 1-p=\frac{1}{R_0},}$

${\displaystyle p_c=1-\frac{1}{R_0}.}$

With p being by itself on the left side of the equation, it can be renamed as p_c, representing the critical proportion of the population needed to be immune to stop the transmission of disease, which is the same as the "herd immunity threshold" HIT. R₀ functions as a measure of contagiousness, so low R₀ values are associated with lower HITs, whereas higher R₀s result in higher HITs. For example, the HIT for a disease with an R₀ of 2 is theoretically only 50%, whereas a disease with an R₀ of 10 the theoretical HIT is 90%.

When the effective reproduction number R_e of a contagious disease is reduced to and sustained below 1 new individual per infection, the number of cases occurring in the population gradually decreases until the disease has been eliminated. If a population is immune to a disease in excess of that disease's HIT, the number of cases reduces at a faster rate, outbreaks are even less likely to happen, and outbreaks that occur are smaller than they would be otherwise. If the effective reproduction number increases to above 1, then the disease is neither in a steady state nor decreasing in incidence, but is actively spreading through the population and infecting a larger number of people than usual.

An assumption in these calculations is that populations are homogeneous, or well-mixed, meaning that every individual is equally likely to come into contact with any other individual, when in reality populations are better described as social networks as individuals tend to cluster together, remaining in relatively close contact with a limited number of other individuals. In these networks, transmission only occurs between those who are geographically or physically close to one another. The shape and size of a network is likely to alter a disease's HIT, making incidence either more or less common.Mathematical models can use contact matrices to estimate the likelihood of encounters and thus transmission.

Values of R₀ and herd immunity thresholds (HITs) of contagious diseases prior to intervention

Disease	Transmission	R0	HIT
Measles	Aerosol	12–18	92–94%
Chickenpox (varicella)	Aerosol	10–12	90–92%
Mumps	Respiratory droplets	10–12	90–92%
COVID-19 (see values for specific strains below)	Respiratory droplets and aerosol	2.9-9.5	65–89%
Rubella	Respiratory droplets	6–7	83–86%
Polio	Fecal–oral route	5–7	80–86%
Pertussis	Respiratory droplets	5.5	82%
Smallpox	Respiratory droplets	3.5–6.0	71–83%
HIV/AIDS	Body fluids	2–5	50–80%
SARS	Respiratory droplets	2–4	50–75%
Diphtheria	Saliva	2.6 (1.7–4.3)	62% (41–77%)
Common cold (e.g., rhinovirus)	Respiratory droplets	2–3	50–67%
Mpox	Physical contact, body fluids, respiratory droplets, sexual (MSM)	2.1 (1.1–2.7)	53% (22–63%)
Ebola (2014 outbreak)	Body fluids	1.8 (1.4–1.8)	44% (31–44%)
Influenza (seasonal strains)	Respiratory droplets	1.3 (1.2–1.4)	23% (17–29%)
Andes hantavirus	Respiratory droplets and body fluids	1.2 (0.8–1.6)	16% (0–36%)
Nipah virus	Body fluids	0.5	0%
MERS	Respiratory droplets	0.5 (0.3–0.8)	0%

In heterogeneous populations, R₀ is considered to be a measure of the number of cases generated by a "typical" contagious person, which depends on how individuals within a network interact with each other. Interactions within networks are more common than between networks, in which case the most highly connected networks transmit disease more easily, resulting in a higher R₀ and a higher HIT than would be required in a less connected network. In networks that either opt not to become immune or are not immunized sufficiently, diseases may persist despite not existing in better-immunized networks.

Overshoot

The cumulative proportion of individuals who get infected during the course of a disease outbreak can exceed the HIT. This is because the HIT does not represent the point at which the disease stops spreading, but rather the point at which each infected person infects fewer than one additional person on average. When the HIT is reached, the number of additional infections does not immediately drop to zero. The excess of the cumulative proportion of infected individuals over the theoretical HIT is known as the overshoot.

Boosts

Further information: Artificial induction of immunity

Vaccination

Main articles: Vaccination and Vaccine

See also: Vaccine-preventable disease and List of human disease case fatality rates

The primary way to boost levels of immunity in a population is through vaccination. Vaccination is originally based on the observation that milkmaids exposed to cowpox were immune to smallpox, so the practice of inoculating people with the cowpox virus began as a way to prevent smallpox. Well-developed vaccines provide protection in a far safer way than natural infections, as vaccines generally do not cause the diseases they protect against and severe adverse effects are significantly less common than complications from natural infections.

The immune system does not distinguish between natural infections and vaccines, forming an active response to both, so immunity induced via vaccination is similar to what would have occurred from contracting and recovering from the disease. To achieve herd immunity through vaccination, vaccine manufacturers aim to produce vaccines with low failure rates, and policy makers aim to encourage their use. After the successful introduction and widespread use of a vaccine, sharp declines in the incidence of diseases it protects against can be observed, which decreases the number of hospitalizations and deaths caused by such diseases.

Assuming a vaccine is 100% effective, then the equation used for calculating the herd immunity threshold can be used for calculating the vaccination level needed to eliminate a disease, written as V_c. Vaccines are usually imperfect however, so the effectiveness, E, of a vaccine must be accounted for:

${\displaystyle V_c=\frac{1-\frac{1}{R_0}}{E}.}$

From this equation, it can be observed that if E is less than (1 − 1/R₀), then it is impossible to eliminate a disease, even if the entire population is vaccinated. Similarly, waning vaccine-induced immunity, as occurs with acellular pertussis vaccines, requires higher levels of booster vaccination to sustain herd immunity. If a disease has ceased to be endemic to a population, then natural infections no longer contribute to a reduction in the fraction of the population that is susceptible. Only vaccination contributes to this reduction. The relation between vaccine coverage and effectiveness and disease incidence can be shown by subtracting the product of the effectiveness of a vaccine and the proportion of the population that is vaccinated, p_v, from the herd immunity threshold equation as follows:

Measles vaccine coverage and reported measles cases in Eastern Mediterranean countries. As coverage increased, the number of cases decreased.

${\displaystyle \left(1-\frac{1}{R_0}\right)-(E\times p_v).}$

It can be observed from this equation that, all other things being equal ("ceteris paribus"), any increase in either vaccine coverage or vaccine effectiveness, including any increase in excess of a disease's HIT, further reduces the number of cases of a disease. The rate of decline in cases depends on a disease's R₀, with diseases with lower R₀ values experiencing sharper declines.

Vaccines usually have at least one contraindication for a specific population for medical reasons, but if both effectiveness and coverage are high enough then herd immunity can protect these individuals. Vaccine effectiveness is often, but not always, adversely affected by passive immunity, so additional doses are recommended for some vaccines while others are not administered until after an individual has lost his or her passive immunity.

Passive immunity

Main article: Passive immunity

Individual immunity can also be gained passively, when antibodies to a pathogen are transferred from one individual to another. This can occur naturally, whereby maternal antibodies, primarily immunoglobulin G antibodies, are transferred across the placenta and in colostrum to fetuses and newborns. Passive immunity can also be gained artificially, when a susceptible person is injected with antibodies from the serum or plasma of an immune person.

Protection generated from passive immunity is immediate, but wanes over the course of weeks to months, so any contribution to herd immunity is temporary. For diseases that are especially severe among fetuses and newborns, such as influenza and tetanus, pregnant women may be immunized in order to transfer antibodies to the child. In the same way, high-risk groups that are either more likely to experience infection, or are more likely to develop complications from infection, may receive antibody preparations to prevent these infections or to reduce the severity of symptoms.

Cost–benefit analysis

Herd immunity is often accounted for when conducting cost–benefit analyses of vaccination programs. It is regarded as a positive externality of high levels of immunity, producing an additional benefit of disease reduction that would not occur had no herd immunity been generated in the population. Therefore, herd immunity's inclusion in cost–benefit analyses results both in more favorable cost-effectiveness or cost–benefit ratios, and an increase in the number of disease cases averted by vaccination. Study designs done to estimate herd immunity's benefit include recording disease incidence in households with a vaccinated member, randomizing a population in a single geographic area to be vaccinated or not, and observing the incidence of disease before and after beginning a vaccination program. From these, it can be observed that disease incidence may decrease to a level beyond what can be predicted from direct protection alone, indicating that herd immunity contributed to the reduction. When serotype replacement is accounted for, it reduces the predicted benefits of vaccination.

History

Measles cases in the United States before and after mass vaccination against measles began.

Herd immunity was recognized as a naturally occurring phenomenon in the 1930s when it was observed that after a significant number of children had become immune to measles, the number of new infections temporarily decreased. Mass vaccination to induce herd immunity has since become common and proved successful in preventing the spread of many contagious diseases. Opposition to vaccination has posed a challenge to herd immunity, allowing preventable diseases to persist in or return to populations with inadequate vaccination rates.

The exact herd immunity threshold (HIT) varies depending on the basic reproduction number of the disease. An example of a disease with a high threshold was the measles, with a HIT exceeding 95%.

The term "herd immunity" was first used in 1894 by American veterinary scientist and then Chief of the Bureau of Animal Industry of the US Department of Agriculture Daniel Elmer Salmon to describe the healthy vitality and resistance to disease of well-fed herds of hogs. In 1916 veterinary scientists inside the same Bureau of Animal Industry used the term to refer to the immunity arising following recovery in cattle infected with brucellosis, also known as "contagious abortion." By 1923 it was being used by British bacteriologists to describe experimental epidemics with mice, experiments undertaken as part of efforts to model human epidemic disease. By the end of the 1920s the concept was used extensively - particularly among British scientists - to describe the build up of immunity in populations to diseases such as diphtheria, scarlet fever, and influenza. Herd immunity was recognized as a naturally occurring phenomenon in the 1930s when A. W. Hedrich published research on the epidemiology of measles in Baltimore, and took notice that after many children had become immune to measles, the number of new infections temporarily decreased, including among susceptible children. In spite of this knowledge, efforts to control and eliminate measles were unsuccessful until mass vaccination using the measles vaccine began in the 1960s. Mass vaccination, discussions of disease eradication, and cost–benefit analyses of vaccination subsequently prompted more widespread use of the term herd immunity. In the 1970s, the theorem used to calculate a disease's herd immunity threshold was developed. During the smallpox eradication campaign in the 1960s and 1970s, the practice of ring vaccination, to which herd immunity is integral, began as a way to immunize every person in a "ring" around an infected individual to prevent outbreaks from spreading.

Since the adoption of mass and ring vaccination, complexities and challenges to herd immunity have arisen. Modeling of the spread of contagious disease originally made a number of assumptions, namely that entire populations are susceptible and well-mixed, which is not the case in reality, so more precise equations have been developed. In recent decades, it has been recognized that the dominant strain of a microorganism in circulation may change due to herd immunity, either because of herd immunity acting as an evolutionary pressure or because herd immunity against one strain allowed another already-existing strain to spread. Emerging or ongoing fears and controversies about vaccination have reduced or eliminated herd immunity in certain communities, allowing preventable diseases to persist in or return to these communities.

money market fund

From Wikipedia, the free encyclopedia

A money market fund (also called a money market mutual fund) is an open-end mutual fund that invests in short-term debt securities such as US Treasury bills and commercial paper. Money market funds are managed with the goal of maintaining a highly stable asset value through liquid investments, while paying income to investors in the form of dividends. Although they are not insured against loss, actual losses have been quite rare in practice.

Regulated in the United States under the Investment Company Act of 1940, and in Europe under Regulation 2017/1131, money market funds are important providers of liquidity to financial intermediaries.

Explanation

Money market funds seek to limit exposure to losses due to credit, market, and liquidity risks. Money market funds in the United States are regulated by the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940. Rule 2a-7 of the act restricts the quality, maturity and diversity of investments by money market funds. Under this act, a money fund mainly buys the highest rated debt, which matures in under 13 months. The portfolio must maintain a weighted average maturity (WAM) of 60 days or less and not invest more than 5% in any one issuer, except for government securities and repurchase agreements.

Securities in which money markets may invest include commercial paper, repurchase agreements, short-term bonds and other money funds. Money market securities must be highly liquid and of the highest quality.

History

In 1971, Bruce R. Bent and Henry B. R. Brown established the first money market fund. It was named the Reserve Fund and was offered to investors who were interested in preserving their cash and earning a small rate of return. Several more funds were shortly set up and the market grew significantly over the next few years. Money market funds are credited with popularizing mutual funds in general, which until that time, were not widely utilized.

Money market funds in the United States created a solution to the limitations of Regulation Q, which at the time prohibited demand deposit accounts from paying interest and capped the rate of interest on other types of bank accounts at 5.25%. Thus, money market funds were created as a substitute for bank accounts.

In the 1990s, bank interest rates in Japan were near zero for an extended period of time. To search for higher yields from these low rates in bank deposits, investors used money market funds for short-term deposits instead. However, several money market funds fell off short of their stable value in 2001 due to the bankruptcy of Enron, in which several Japanese funds had invested, and investors fled into government-insured bank accounts. Since then the total value of money markets have remained low.

Money market funds in Europe have always had much lower levels of investments capital than in the United States or Japan. Regulations in the EU have always encouraged investors to use banks rather than money market funds for short-term deposits.

Breaking the buck

Money market funds seek a stable net asset value (NAV) per share (which is generally $1.00 in the United States). They aim to never lose money. The $1.00 is maintained through the declaration of dividends to shareholders, typically daily, at an amount equal to the fund's net income. If a fund's NAV drops below $1.00, it is said that the fund "broke the buck". For SEC registered money funds, maintaining the $1.00 flat NAV is usually accomplished under a provision under Rule 2a-7 of the 40 Act that allows a fund to value its investments at amortized cost rather than market value, provided that certain conditions are maintained. One such condition involves a side-test calculation of the NAV that uses the market value of the fund's investments. The fund's published, amortized value may not exceed this market value by more than 1/2 cent per share, a comparison that is generally made weekly. If the variance does exceed $0.005 per share, the fund could be considered to have broken the buck, and regulators may force it into liquidation.

Buck breaking has rarely happened. Up to the 2008 financial crisis, only three money funds had broken the buck in the 37-year history of money funds.

It is important to note that, while money market funds are typically managed in a fairly safe manner, there would have been many more failures over this period if the companies offering the money market funds had not stepped in when necessary to support their fund (by way of infusing capital to reimburse security losses) and avoid having the funds break the buck. This was done because the expected cost to the business from allowing the fund value to drop—in lost customers and reputation—was greater than the amount needed to bail it out.

The first money market mutual fund to break the buck was First Multifund for Daily Income (FMDI) in 1978, liquidating and restating NAV at 94 cents per share. An argument has been made that FMDI was not technically a money market fund as at the time of liquidation the average maturity of securities in its portfolio exceeded two years. However, prospective investors were informed that FMDI would invest "solely in Short-Term (30-90 days) MONEY MARKET obligations". Furthermore, the rule restricting the maturities which money market funds are permitted to invest in, Rule 2a-7 of the Investment Company Act of 1940, was not promulgated until 1983. Prior to the adoption of this rule, a mutual fund had to do little other than present itself as a money market fund, which FMDI did. Seeking higher yield, FMDI had purchased increasingly longer maturity securities, and rising interest rates negatively impacted the value of its portfolio. In order to meet increasing redemptions, the fund was forced to sell a certificate of deposit at a 3% loss, triggering a restatement of its NAV and the first instance of a money market fund "breaking the buck".

The Community Bankers US Government Fund broke the buck in 1994, paying investors 96 cents per share. This was only the second failure in the then 23-year history of money funds and there were no further failures for 14 years. The fund had invested a large percentage of its assets into adjustable rate securities. As interest rates increased, these floating rate securities lost value. This fund was an institutional money fund, not a retail money fund, thus individuals were not directly affected.

No further failures occurred until September 2008, a month that saw tumultuous events for money funds. However, as noted above, other failures were only averted by infusions of capital from the fund sponsors.

September 2008

See also: 2007–2008 financial crisis

Money market funds increasingly became important to the wholesale money market leading up to the crisis. Their purchases of asset-backed securities and large-scale funding of foreign banks' short-term US-denominated debt put the funds in a pivotal position in the marketplace.

The week of September 15, 2008, to September 19, 2008, was very turbulent for money funds and a key part of financial markets seizing up.

Events

On Monday, September 15, 2008, Lehman Brothers Holdings Inc. filed for bankruptcy. On Tuesday, September 16, 2008, The Reserve Primary Fund broke the buck when its shares fell to 97 cents after writing off debt issued by Lehman Brothers.

Continuing investor anxiety as a result of the Lehman Brothers bankruptcy and other pending financial troubles caused significant redemptions from money funds in general, as investors redeemed their holdings and funds were forced to liquidate assets or impose limits on redemptions. Through Wednesday, September 17, 2008, prime institutional funds saw substantial redemptions. Retail funds saw net inflows of $4 billion, for a net capital outflow from all funds of $169 billion to $3.4 trillion (5%).

In response, on Friday, September 19, 2008, the US Department of the Treasury announced an optional program to "insure the holdings of any publicly offered eligible money market mutual fund—both retail and institutional—that pays a fee to participate in the program". The insurance guaranteed that if a covered fund had broken the buck, it would have been restored to $1 NAV. The program was similar to the FDIC, in that it insured deposit-like holdings and sought to prevent runs on the bank. The guarantee was backed by assets of the Treasury Department's Exchange Stabilization Fund, up to a maximum of $50 billion. This program only covered assets invested in funds before September 19, 2008, and those who sold equities, for example, during the subsequent market crash and parked their assets in money funds, were at risk. The program immediately stabilized the system and stanched the outflows, but drew criticism from banking organizations, including the Independent Community Bankers of America and American Bankers Association, who expected funds to drain out of bank deposits and into newly insured money funds, as these latter would combine higher yields with insurance. The guarantee program ended on September 18, 2009, with no losses and generated $1.2 billion (~$1.66 billion in 2023) in revenue from the participation fees.

Analysis

The crisis, which eventually became the catalyst for the Emergency Economic Stabilization Act of 2008, almost developed into a run on money funds: the redemptions caused a drop in demand for commercial paper, preventing companies from rolling over their short-term debt, potentially causing an acute liquidity crisis: if companies cannot issue new debt to repay maturing debt, and do not have cash on hand to pay it back, they will default on their obligations, and may have to file for bankruptcy. Thus there was concern that the run could cause extensive bankruptcies, a debt deflation spiral, and serious damage to the real economy, as in the Great Depression.

The drop in demand resulted in a "buyers strike", as money funds could not (because of redemptions) or would not (because of fear of redemptions) buy commercial paper, driving yields up dramatically: from around 2% the previous week to 8%, and funds put their money in Treasuries, driving their yields close to 0%.

This is a bank run in the sense that there is a mismatch in maturities, and thus a money fund is a "virtual bank": the assets of money funds, while short term, nonetheless typically have maturities of several months, while investors can request redemption at any time, without waiting for obligations to come due. Thus if there is a sudden demand for redemptions, the assets may be liquidated in a fire sale, depressing their sale price.

An earlier crisis occurred in 2007–2008, where the demand for asset-backed commercial paper dropped, causing the collapse of some structured investment vehicles. As a result of the events, the Reserve Fund liquidated, paying shareholders 99.1 cents per share.

Statistics

The Investment Company Institute reports statistics on money funds weekly as part of its mutual fund statistics, as part of its industry statistics, including total assets and net flows, both for institutional and retail funds. It also provides annual reports in the ICI Fact Book.

At the end of 2011, there were 632 money market funds in operation, with total assets of nearly US$2.7 trillion. Of this $2.7 trillion, retail money market funds had $940 billion in Assets Under Management (AUM). Institutional funds had $1.75 trillion under management.

Types and size of money funds

In the United States, the fund industry and its largest trade organization, the Investment Company Institute, generally categorize money funds into the type of investment strategy: Prime, Treasury or Tax-exempt as well as distribution channel/investor: Institutional or Retail.

Prime money fund

A fund that invests generally in variable-rate debt and commercial paper of corporations and securities of the US government and agencies. Can be considered of any money fund that is not a Treasury or Tax-exempt fund.

Government and Treasury money funds

A Government money fund (as of the SEC's July 24, 2014 rule release) is one that invests at least 99.5% of its total assets in cash, government securities, and/or repurchase agreements that are "collateralized fully" (i.e., collateralized by cash or government securities). A Treasury fund is a type of government money fund that invests in US Treasury Bills, Bonds and Notes.

Tax-exempt money fund

The fund invests primarily in obligations of state and local jurisdictions ("municipal securities") generally exempt from US Federal Income Tax (and to some extent state income taxes).

Institutional money fund

Institutional money funds are high minimum investment, low expense share classes that are marketed to corporations, governments, or fiduciaries. They are often set up so that money is swept to them overnight from a company's main operating accounts. Large national chains often have many accounts with banks all across the country, but electronically pull a majority of funds on deposit with them to a concentrated money market fund.

Retail money fund

Retail money funds are offered primarily to individuals. Retail money market funds hold roughly 33% of all money market fund assets.

Fund yields are typically somewhat higher than bank savings accounts, but of course these are different products with differing risks (e.g., money fund accounts are not insured and are not deposit accounts). Since Retail funds generally have higher servicing needs and thus expenses than Institutional funds, their yields are generally lower than Institutional funds.

SEC rule amendments released July 24, 2014, have 'improved' the definition of a Retail money fund to be one that has policies and procedures reasonably designed to limit its shareholders to natural persons.

Money fund sizes

Recent total net assets for the US Fund industry are as follows: total net assets $2.6 trillion: $1.4 trillion in Prime money funds, $907 billion in Treasury money funds, $257 billion in Tax-exempt. Total Institutional assets outweigh Retail by roughly 2:1.

The largest institutional money fund is the JPMorgan Prime Money Market Fund, with over US$100 billion in assets. Among the largest companies offering institutional money funds are BlackRock, Western Asset, Federated Investors, Bank of America, Dreyfus, AIM and Evergreen (Wachovia).

The largest money market mutual fund is Vanguard Federal Money Market Fund (Nasdaq:VMFXX), with assets exceeding US$120 billion. The largest retail money fund providers include: Fidelity, Vanguard, and Schwab.

Similar investments

Money market accounts

Main article: Money market account

Banks in the United States offer savings and money market deposit accounts, but these should not be confused with money mutual funds. These bank accounts offer higher yields than traditional passbook savings accounts, but often with higher minimum balance requirements and limited transactions. A money market account may refer to a money market mutual fund, a bank money market deposit account (MMDA) or a brokerage sweep free credit balance.

Ultrashort bond funds

Ultrashort bond funds are mutual funds, similar to money market funds, that, as the name implies, invest in bonds with extremely short maturities. Unlike money market funds, however, there are no restrictions on the quality of the investments they hold. Instead, ultrashort bond funds typically invest in riskier securities in order to increase their return. Since these high-risk securities can experience large swings in price or even default, ultrashort bond funds, unlike money market funds, do not seek to maintain a stable $1.00 NAV and may lose money or dip below the $1.00 mark in the short term. Finally, because they invest in lower quality securities, ultrashort bond funds are more susceptible to adverse market conditions such as those brought on by the financial crisis of 2007–2010.

Enhanced cash funds

Enhanced cash funds are bond funds similar to money market funds, in that they aim to provide liquidity and principal preservation, but which:

• Invest in a wider variety of assets, and do not meet the restrictions of SEC Rule 2a-7;
• Aim for higher returns;
• Have less liquidity;
• Do not aim as strongly for stable NAV.

Enhanced cash funds will typically invest some of their portfolio in the same assets as money market funds, but others in riskier, higher yielding, less liquid assets such as:

• Lower-rated bonds;
• Longer maturity;
• Foreign currency–denominated debt;
• Asset-backed commercial paper (ABCP);
• Mortgage-backed securities (MBSs);
• Structured investment vehicles (SIVs).

In general, the NAV will stay close to $1, but is expected to fluctuate above and below, and will break the buck more often. Different managers place different emphases on risk versus return in enhanced cash – some consider preservation of principal as paramount, and thus take few risks, while others see these as more bond-like, and an opportunity to increase yield without necessarily preserving principal. These are typically available only to institutional investors, not retail investors.

The purpose of enhanced cash funds is not to replace money markets, but to fit in the continuum between cash and bonds – to provide a higher yielding investment for more permanent cash. That is, within one's asset allocation, one has a continuum between cash and long-term investments:

• Cash – most liquid and least risky, but low yielding;
• Money markets / cash equivalents;
• Enhanced cash;
• Long-term bonds and other non-cash long-term investments – least liquid and most risky, but highest yielding.

Enhanced cash funds were developed due to low spreads in traditional cash equivalents.

There are also funds which are billed as "money market funds", but are not 2a-7 funds (do not meet the requirements of the rule). In addition to 2a-7 eligible securities, these funds invest in Eurodollars and repos (repurchase agreements), which are similarly liquid and stable to 2a-7 eligible securities, but are not allowed under the regulations.

Systemic risk and global regulatory reform

US regulatory reform

A deconstruction of the September 2008 events around money market funds, and the resulting fear, panic, contagion, classic bank run, emergency need for substantial external propping up, etc. revealed that the US regulatory system covering the basic extension of credit has had substantial flaws that in hindsight date back at least two decades.

It has long been understood that regulation around the extension of credit requires substantial levels of integrity throughout the system. To the extent regulation can help insure that base levels of integrity persist throughout the chain, from borrower to lender, and it curtails the overall extension of credit to reasonable levels, episodic financial crisis may be averted.

In the 1970s, money market funds began disintermediating banks from their classic interposition between savers and borrowers. The funds provided a more direct link, with less overhead. Large banks are regulated by the Federal Reserve Board and the Office of the Comptroller of the Currency. Notably, the Fed is itself owned by the large private banks, and controls the overall supply of money in the United States. The OCC is housed within the Treasury Department, which in turn manages the issuance and maintenance of the multi-trillion dollar debt of the US government. The overall debt is of course connected to ongoing federal government spending vs. actual ongoing tax receipts. Unquestionably, the private banking industry, bank regulation, the national debt, and ongoing governmental spending politics are substantially interconnected. Interest rates incurred on the national debt is subject to rate setting by the Fed, and inflation (all else being equal) allows today's fixed debt obligation to be paid off in ever cheaper to obtain dollars. The third major bank regulator, designed to swiftly remove failing banks is the Federal Deposit Insurance Corporation, a bailout fund and resolution authority that can eliminate banks that are failing, with minimum disruption to the banking industry itself. They also help ensure depositors continue to do business with banks after such failures by insuring their deposits.

From the outset, money market funds fell under the jurisdiction of the SEC as they appeared to be more like investments (most similar to traditional stocks and bonds) vs. deposits and loans (cash and cash equivalents the domain of the bankers). Although money market funds are quite close to and are often accounted for as cash equivalents their main regulator, the SEC, has zero mandate to control the supply of money, limit the overall extension of credit, mitigate against boom and bust cycles, etc. The SEC's focus remains on adequate disclosure of risk, and honesty and integrity in financial reporting and trading markets. After adequate disclosure, the SEC adopts a hands off, let the buyer beware attitude.

To many retail investors, money market funds are confusingly similar to traditional bank demand deposits. Virtually all large money market funds offer check writing, ACH transfers, wiring of funds, associated debit and credit cards, detailed monthly statements of all cash transactions, copies of canceled checks, etc. This makes it appear that cash is actually in the individual's account. With net asset values reported flat at $1.00, despite the market value variance of the actual underlying assets, an impression of rock solid stability is maintained. To help maintain this impression, money market fund managers frequently forgo being reimbursed legitimate fund expenses, or cut their management fee, on an ad hoc and informal basis, to maintain that solid appearance of stability.

To illustrate the various blending and blurring of functions between classic banking and investing activities at money market funds, a simplified example will help. Imagine only retail "depositors" on one end, and S&P 500 corporations borrowing through the commercial paper market on the other. The depositors assume:

• Extremely short duration (60 days or less)
• Extremely broad diversification (hundreds, if not thousands of positions)
• Very high grade investments.

After 10–20 years of stability the "depositors" here assume safety, and move all cash to money markets, enjoying the higher interest rates.

On the borrowing end, after 10–20 years, the S&P 500 corporations become extremely accustomed to obtaining funds via these money markets, which are very stable. Initially, perhaps they only borrowed in these markets for a highly seasonal cash needs, being a net borrower for only say 90 days per year. They would borrow here as they experienced their deepest cash needs over an operating cycle to temporarily finance short-term build ups in inventory and receivables. Or, they moved to this funding market from a former bank revolving line of credit, that was guaranteed to be available to them as they needed it, but had to be cleaned up to a zero balance for at least 60 days out of the year. In these situations the corporations had sufficient other equity and debt financing for all of their regular capital needs. They were however dependent on these sources to be available to them, as needed, on an immediate daily basis.

Over time, money market fund "depositors" felt more and more secure, and not really at risk. Likewise, on the other end, corporations saw the attractive interest rates and incredibly easy ability to constantly roll over short term commercial paper. Using rollovers they then funded longer and longer term obligations via the money markets. This expands credit. It's also over time clearly long-term borrowing on one end, funded by an on-demand depositor on the other, with some substantial obfuscation as to what is ultimately going on in between.

In the wake of the crisis two solutions have been proposed. One, repeatedly supported over the long term by the GAO and others is to consolidate the US financial industry regulators. A step along this line has been the creation of the Financial Stability Oversight Council to address systemic risk issues that have in the past, as amply illustrated by the money market fund crisis above, fallen neatly between the cracks of the standing isolated financial regulators. Proposals to merge the SEC and CFTC have also been made.

A second solution, more focused on money market funds directly, is to re-regulate them to address the common misunderstandings, and to ensure that money market "depositors", who enjoy greater interest rates, thoroughly understand the actual risk they are undertaking. These risks include substantial interconnectedness between and among money market participants, and various other substantial systemic risks factors.

One solution is to report to money market "depositors" the actual, floating net asset value. This disclosure has come under strong opposition by Fidelity Investments, The Vanguard Group, BlackRock, and the US Chamber of Commerce as well as others.

The SEC would normally be the regulator to address the risks to investors taken by money market funds, however to date the SEC has been internally politically gridlocked. The SEC is controlled by five commissioners, no more than three of which may be the same political party. They are also strongly enmeshed with the current mutual fund industry, and are largely divorced from traditional banking industry regulation. As such, the SEC is not concerned over overall credit extension, money supply, or bringing shadow banking under the regulatory umbrella of effective credit regulation.

As the SEC was gridlocked, the Financial Stability Oversight Council promulgated its own suggested money market reforms and threatens to move forward if the SEC doesn't button it up with an acceptable solution of their own on a timely basis. The SEC has argued vociferously that this is "their area" and FSOC should back off and let them handle it, a viewpoint shared by four former SEC chairmen, Roderick Hills, David Ruder, Richard Breeden, and Harvey Pitt, and two former commissioners, Roel Campos and Paul S. Atkins.

US Reform: SEC Rule Amendments released July 24, 2014

The Securities and Exchange Commission (SEC) issued final rules that are designed to address money funds’ susceptibility to heavy redemptions in times of stress, improve their ability to manage and mitigate potential contagion from such redemptions, and increase the transparency of their risks, while preserving, as much as possible, their benefits.

There are several key components:

Floating NAV required of institutional non-government money funds

The SEC is removing the valuation exemption that permitted these funds (whose investors historically have made the heaviest redemptions in times of stress) to maintain a stable NAV, i.e., they will have to transact sales and redemptions as a market value-based or "floating" NAV, rounded to the fourth decimal place (e.g., $1.0000).

Fees and gates

The SEC is giving money fund boards of directors the discretion whether to impose a liquidity fee if a fund's weekly liquidity level falls below the required regulatory threshold, and/or to suspend redemptions temporarily, i.e., to "gate" funds, under the same circumstances. These amendments will require all non-government money funds to impose a liquidity fee if the fund's weekly liquidity level falls below a designated threshold, unless the fund's board determines that imposing such a fee is not in the best interests of the fund.

Other provisions

In addition, the SEC is adopting amendments designed to make money market funds more resilient by increasing the diversification of their portfolios, enhancing their stress testing, and improving transparency by requiring money market funds to report additional information to the SEC and to investors. Additionally, stress testing will be required and a key focus will be placed on the funds ability to maintain weekly liquid assets of at least 10%. Finally, the amendments require investment advisers to certain large unregistered liquidity funds, which can have many of the same economic features as money market funds, to provide additional information about those funds to the SEC.

EU regulatory reform

In parallel with the US Reform, the EU completed drafting of a similar regulation for the money market fund product.

On June 30, 2017, Regulation (EU) 2017/1131 for money market funds was published in the Official Journal of the European Union, introducing new rules for MMFs domiciled, managed or marketed in the European Union. This entered into effect in March 2019. The regulation introduces four new categories of fund structures for MMFs:

• Public Debt Constant Net Asset Value (CNAV) MMFs are short-term MMFs. Funds must invest 99.5% in government assets. Units in the fund are purchased or redeemed at a constant price rounded to the nearest percentage point.
• Low Volatility Net Asset Value (LVNAV) MMFs are short-term MMFs. Funds around are purchased or redeemed at a constant price so long as the value of the underlying assets do not deviate by more than 0.2% (20bit/s) from par (i.e. 1.00).
• Short Term Variable NAV – Short-term Variable Net Asset Value (VNAV) MMFs are primarily invested in money market instruments, deposits and other MMFs. Funds are subject to looser liquidity rules than Public Debt CNAV and LVNAV funds. Units in the funds are purchased or redeemed at a variable price calculated to the equivalent of at least four significant figures (e.g. 10,000.00).
• Standard Variable NAV VNAV– Standard MMFs must be VNAV funds. Funds are primarily invested in money market instruments, deposits and other short-term assets. Funds are subject to looser liquidity rules than Public Debt CNAV and LVNAV funds AND may invest in assets of much longer maturity. Units in the funds are purchased or redeemed at a variable price calculated to the equivalent of at least four significant figures (e.g. 10,000.00).

Although the starting products were similar, there are now considerable differences between US and EU MMFs. Whilst EU MMF investors mostly moved to successor fund types, investors in US MMFs undertook a huge and persisting switch from Prime into Government MMF.

The EU MMF Regulation does not make any reference to either fund or portfolio external credit rating requirements. Throughout the transition EU MMFs overwhelmingly retained their existing ratings, and the credit rating agencies have confirmed their commitment to the MMF-specific rating criteria they each maintain.

A major difference in scope is that, on a like-for-like basis, US MMFs may be compared only to EU short-term MMFs.