February 19, 2002
Re: Investments in a Broker's Money Market Fund
Dear [ ]:
Your letter of December 20,2001 has been referred to me for reply. You ask if a broker's money market fund consisting entirely of cash or bonds is considered a stock or a bond? Although you do not ask specifically, I am interpreting your question as to how your institution would report such investment on its books. The Banking Department is of the position that an investment in shares of a broker's money market fund would be reported as an investment in stock. However, there are additional legal provisions relating to an investment such as the one you contemplate to which you should be apprised.
Banking Law Section 97(5) grants to the Banking Board the authority to permit banks to purchase the capital stock of any corporation. Part 36 of the General Regulations, adopted pursuant to Section 97(5), provides that a bank, subject to the requirements of Section 36.2 thereunder, may invest in the shares of investment companies (referred to as a "fund"), provided that the portfolio of the fund consists solely of investments in stocks and obligations in which a bank may invest directly. A bank investing in any such fund is subject to the requirement contained in Section 36.2(c) which obligates the bank to periodically monitor the portfolio of such fund to determine the appropriateness of the fund's investments for the bank's portfolio.
Section 36(2)(a) provides that a bank may invest in the shares of any single fund without express limit, subject to the limitations contained in subdivision Section 36(2)(b). Section 36(2)(b) provides that a bank which invests in a fund which contains assets subject to investment limits must review the fund portfolios on a periodic basis in order to ascertain whether the combined investment of the bank in the obligations of a single issuer (taking into account the bank's proportionate holding of fund shares together with any other investment) would comply with the limitations contained in Banking Law Sections 97(4-b), 103 and 106, if said sections were to be applied to such investments and must reduce excessive holdings within a reasonable period of time to conform to such limitations. Accordingly, each type of security the broker's money market fund intends to purchase must be analyzed under these Sections to determine if Bank could directly invest in each.
I trust the foregoing is responsive to your question. Should you require any additional information, please feel free to call me directly at [ ].