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Parking Corporate Cash Is Sure to Get More Complicated

If corporations stop parking their cash in prime funds, then companies like FMC might find less demand in the marketplace for their short-term commercial paper. As those funds’ pool of assets shrinks, so would demand for commercial-paper offerings.

Some market watchers think worries about the rule changes are largely overblown. They include Tony Carfang, a partner at consulting firm Treasury Strategies Inc. For one thing, he believes investors such as hedge funds, insurers and bond funds would step in to buy corporate commercial paper if the prime funds couldn’t soak up the supply. “It’s really like the Y2K problem,” with companies preparing for a worst-case scenario, like a global computer failure, that never actually materializes, he said.

He said overly cautious CFOs and treasurers would pull money out of prime funds, retreating from them at first. But they will come back “when they see their friends [who stayed put] getting better returns,” he added.

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Maxwell Murphy/CFO Journal

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