There are fourteen Money Market Instruments that are eligible to settle at DTC and they include Corporate Commercial Paper, Municipal Commercial Paper, Medium Term Notes, Institutional Certificates of Deposits and several others. Commercial Paper has the shortest maturity dates and is the most active from an issuance and maturing perspective since it allows corporate issuers to determine their cash flow needs on a daily basis if necessary.
Key participants in the MMI space include:
- The Issuers of the Debt (Issuers): Issuers are typically financial institutions, large corporations, or state and local governments that use MMIs to finance their daily operations. Issuers are not direct participants of DTC and therefore employ the services of Issuing and Paying Agent (IPA) bank. Issuers represent the legal obligors on the issued MMI securities.
- The Issuing and Paying Agents (IPAs): IPAs are commercial banks used by the issuer to facilitate MMI debt instructions including maturity obligations, Principle and Income Payment (P&I), and Reorganization (RP) payments to investors. The IPA does not have a legal obligation to honor maturing MMIs, P&I, or RP payments if they have not received funding from the issuer.
- The Brokers and Dealers: These are securities firms that act as financial intermediaries in the distribution of MMI securities. Brokers typically act on behalf of their clients while dealers may acquire MMI securities for their own interests.
- The Investor: The investor is the party that buys MMIs. MMIs are an attractive investment to a wide range of institutions including, but not limited to, money market mutual funds, banks, insurance companies, federal agencies, pension funds, Broker/dealers, as well as the Federal Reserve Bank.
- The Custodian: These are banks that provide custodial services for securities held by the investor. The custodian “holds” investor positions and manages MMI transactions per the investor’s instructions.