3.4 Money Market Instruments
The money market provides short-term cash management for institutions and capital preservation for retail investors. The Series 7 emphasizes maturity caps and registration exemptions.
Key FINRA Exam Takeaways
- Money market instruments are high-quality, liquid debt instruments with maturities of 1 year or less.
- Commercial Paper: Short-term unsecured corporate promissory notes; max maturity 270 days to exempt from 1933 Act registration.
- Negotiable Certificates of Deposit (CDs): Minimum $100,000 denomination, trade on secondary markets, FDIC insured up to $250k.
- Bankers' Acceptances (BAs): Used to finance foreign trade and import/export transactions; max 270 days.
- Repurchase Agreements (Repos): Sale of securities with an agreement to repurchase at a higher price; short-term bank liquidity.
Commercial Paper 270-Day Exemption
Under Section 3(a)(3) of the Securities Act of 1933, commercial paper with a maturity not exceeding 270 days is exempt from SEC registration. Issuers almost never issue commercial paper beyond 270 days to avoid full registration.
Bankers' Acceptances (BAs)
BAs function as post-dated corporate checks guaranteed by a commercial bank. They are primarily used in international trade to assure foreign exporters that payment will be honored upon shipping verification.
Interactive Knowledge Checkpoint • Section 3.4
Why do corporate issuers restrict commercial paper maturities to a maximum duration of 270 days?