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Money Market Investor Funding Facility:
Frequently Asked Questions

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The following is intended to address operational questions about the
Money Market Investor Funding Facility (MMIFF).

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Why is the Federal Reserve establishing the MMIFF?
The short-term debt markets have been under considerable strain in
recent weeks as money market mutual funds and other investors
have been increasing their liquidity positions by investing in shorterterm—frequently overnight—assets. By facilitating sales of money
market instruments in the secondary market, the MMIFF should give
money market mutual funds and other money market investors
confidence that they can extend the terms of their investments and
still maintain appropriate liquidity positions. Greater access to term
financing from money market investors will enhance the ability of
banks and other financial intermediaries to accommodate the credit
needs of businesses and households.
How will the MMIFF work?
The Federal Reserve Bank of New York will provide senior secured
funding to a series of special purpose vehicles established by the
private sector (SPVs) to finance the purchase of certain money
market instruments from eligible investors. Eligible assets will include
U.S. dollar-denominated certificates of deposit, bank notes and
commercial paper issued by highly rated financial institutions. Assets
must be DTC cleared and have remaining maturities of at least 7 days
and no more than 90 days. Eligible investors will include U.S. 2a-7
money market mutual funds and certain other money market
investors. Each SPV will finance its purchases of eligible assets by
selling asset-backed commercial paper (ABCP) and by borrowing
under the MMIFF. The SPV will issue to the seller of the eligible asset
subordinated ABCP equal to 10 percent of the asset’s purchase price.
The ABCP will be rated at least A-1/P-1/F1 by two or more major
nationally recognized statistical rating organizations (NRSROs), S&P,
Moody’s and Fitch, respectively. The New York Fed will lend to each
SPV, on a senior secured basis, 90 percent of the purchase price of
each eligible asset. The SPVs will hold the eligible assets until they
mature, and proceeds from the assets will be used to repay the
Federal Reserve loan and the ABCP.
When will the MMIFF become operational?
The New York Fed will begin funding SPV purchases of eligible money
market instruments in connection with the MMIFF on November 24,
2008.
What is the minimum size for assets to be sold into the SPVs?
Each asset sold to each SPV must have a minimum size of $250,000.
How is the Federal Reserve protected against loss?
The New York Fed loans under the MMIFF will be fully collateralized
by all of the assets of the SPVs. These assets will be short-term,
high-credit-quality debt instruments. In addition, the ABCP issued by

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each SPV and held by the investors will be subordinated to the New
York Fed loans and will absorb approximately the first ten percent of
any losses incurred by the SPV. Any excess spread earned by the
SPVs will be paid to the New York Fed as a further buffer against loss.
How many SPVs will be established to borrow under the
MMIFF?
The MMIFF will be initially authorized to lend to five SPVs.
How big will the MMIFF be?
The SPVs will be authorized, in total, to purchase a maximum amount
of $600 billion in eligible assets. Since the New York Fed will provide
90 percent of the financing of the SPVs, Federal Reserve lending
could total $540 billion.
What investors will be eligible to sell assets to SPVs
participating in the MMIFF?
In addition to U.S. 2a-7 money market mutual funds, eligible
investors will include funds that are managed or owned by a U.S.
bank, insurance company, pension fund, trust company, SECregistered investment advisor or a U.S. state or local government
entity and are required to (i) maintain a dollar-weighted average
portfolio maturity of 90 days or less; (ii) hold the fund's assets until
maturity under usual circumstances; and (iii) hold only assets that, at
time of purchase, are rated by an NRSRO in one of the top three
long-term investment-grade rating categories (e.g., A and above) or
the top two short-term investment-grade rating categories (e.g., A-2
and above), or that are the credit equivalent thereof. Eligible
investors will also include any U.S. dollar-denominated cash collateral
reinvestment fund, account, or portfolio associated with securities
lending transactions that is managed or owned by a U.S. bank,
insurance company, pension fund, trust company, or SEC-registered
investment advisor. Eligible investors will be subject to approval by
the New York Fed prior to participation, and may be subject to debt
and/or deposit rating criteria.
What steps should eligible investors take to participate in the
MMIFF?
Any eligible investor that seeks to participate in the MMIFF should
contact its J.P. Morgan account representative or call J.P. Morgan at
212-834-5389 to obtain MMIFF program information, including the
list of assets eligible for purchase, required documentation and
operating procedures. The documentation will include the Fund
Representation Letter and an Asset Allocation Spreadsheet. One Fund
Representation Letter is required for each eligible investor (each fund
must provide a separate form). In addition, each eligible investor will
need to submit an IRS form W-9. Eligible investors can also obtain
portfolio holdings of each SPV and the Private Placement
Memorandum for the ABCP notes through J.P. Morgan.
Which assets are eligible to be sold to SPVs participating in
the MMIFF?
Each SPV will purchase U.S. dollar-denominated certificates of
deposit, bank notes, and commercial paper. Assets must be DTC
cleared with a remaining maturity of at least seven days and no more
than 90 days. Assets must have a yield of at least 60 basis points
above the primary credit rate at the time of purchase by the SPV.
Each of the five SPVs will only purchase debt instruments issued by
ten financial institutions designated in its operational documents.
Each of these financial institutions will have a short-term debt rating
of at least A-1/P-1/F1 from two or more major NRSROs (S&P,
Moody’s and Fitch, respectively).
How were the fifty financial institutions chosen?
The fifty financial institutions were chosen by representatives of the
U.S. money market mutual fund industry. The financial institutions
were chosen primarily because they are among the largest issuers of
highly rated short-term liabilities held by money market mutual
funds, but also with an objective of achieving geographical
diversification in each SPV. The financial institutions include most of
the largest global North American and European financial institutions.
Does the Federal Reserve intend to expand the MMIFF beyond
debt instruments of these fifty financial institutions?
The Federal Reserve may consider such an expansion, however it will

assess the effects of the MMIFF before expanding the MMIFF’s
coverage.
What will be the rate of return on the ABCP?
Eligible investors will sell eligible assets to the SPVs at amortized
cost. Investors will initially earn an interest rate on the ABCP they
receive that is at least 25 basis points below the interest rate on the
assets they sell. When a SPV is wound down, it is possible that each
eligible investor that sold assets to the SPVs will receive a contingent
distribution of funds, to the extent there is available accumulated
income in the SPV, which will increase the total yield to the investor
(including the yield on the investor’s ABCP up to 25 basis points
above the yield on the assets it sold to the SPV). The right to receive
any contingent distributions applies only to eligible investors who sell
assets to the SPVs, is not transferable and does not apply to persons
who purchase ABCP in the secondary market.
At what rate will the Federal Reserve lend to the SPVs under
the MMIFF?
The New York Fed will lend to the SPVs at the primary credit rate.
Information on the current primary credit rate is available from the
Federal Reserve System’s discount window web site
(http://www.frbdiscountwindow.org/index.cfm). In order to
reduce the interest rate risk of the SPVs, however, the Federal
Reserve has agreed to subordinate its right to receive certain
amounts of potential interest payments. Specifically, if the primary
credit rate rises above the subordination threshold, the New York
Fed’s right to receive interest above the threshold rate will be
subordinated to the rights of the ABCP holders to receive principal
and interest. The subordination threshold will be equal to 50 basis
points plus the lower of (i) the current primary credit rate and (ii) the
primary credit rate 90 days before. In other words, the subordination
threshold will immediately and automatically decrease to track any
declines in the primary credit rate and will increase automatically 91
days after any increase in the primary credit rate. Any accumulated
income in a SPV not distributed to investors will accrue to the New
York Fed.
What role will the private sector play in the MMIFF?
J.P. Morgan will be the structuring agent and referral agent for the
SPVs; it was chosen for this role by representatives of the money
market mutual fund industry. Other financial institutions will provide
custodial, private placement and administrative services to the SPVs.
Is there any limit on how much an investor may sell to the
SPVs participating in the MMIFF?
The MMIFF program documents will not limit how much a single
investor may sell to a SPV, but SEC Rule 2a-7 under the Investment
Company Act will place quantitative limits on the ability of money
market mutual funds to sell assets to the SPVs.
Over what time period will the MMIFF operate?
The SPVs began purchasing eligible assets on November 24, 2008
and will cease purchasing assets on October 30, 2009, unless the
Board of Governors of the Federal Reserve System extends the
MMIFF. The New York Fed will continue to fund the SPVs after such
date until the SPVs’ underlying assets mature.
What is the relationship between the CPFF and the MMIFF?
The MMIFF complements the CPFF. The CPFF will finance an SPV's
purchase of three-month commercial paper from issuers at interest
rates chosen to be above market rates in more normal times,
assuring participating issuers that they need pay no more than the
CPFF rates to roll over their commercial paper. The MMIFF will tend to
pull down short-term debt rates by relieving some of the balance
sheet pressures on money market investors. Both the MMIFF and the
CPFF are intended to improve liquidity in short-term debt markets
and thereby increase the availability of credit for businesses and
households.
What is the relationship between the AMLF and the MMIFF?
The AMLF finances the purchases of ABCP by banking organizations
with loans from the Federal Reserve Bank of Boston at the primary
credit rate. The loans are collateralized by the ABCP but are without
recourse to the borrowing banking organization. Under the MMIFF,

the New York Fed’s loans are collateralized by a different set of
money market instruments and are with recourse to the borrowing
SPV. Both the AMLF and the MMIFF are intended to facilitate the sale
of assets by money market mutual funds in the secondary market to
increase their liquidity and encourage them to lend at longer
maturities, but the MMIFF facilitates the sale of a different set of
assets than the AMLF.
What is the legal basis for the MMIFF?
The MMIFF is authorized under section 13(3) of the Federal Reserve
Act, which permits the Board, in unusual and exigent circumstances,
to authorize Reserve Banks to extend credit to individuals,
partnerships, and corporations that are unable to obtain adequate
credit accommodations.
How will the Federal Reserve report lending under the MMIFF?
Balance sheet items related to the MMIFF will be reported on the
H.4.1 weekly statistical release entitled “Factors Affecting Reserve
Balances of Depository Institutions and Condition Statement of
Federal Reserve Banks.” There will be an explanatory cover note on
the release when items are added.
Where should questions regarding the MMIFF be directed?
Questions should be directed to the New York Fed’s Public Affairs
department: 212-720-6130.
FAQs: January 7, 2009 ››
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