The nation's major money market mutual funds yesterday began refusing new customers in the wake of the Federal Reserve's new controls over them. The action will mean lower yields for future investors when the markets reopen.
Merrill Lynch's Ready Assets Trust, the largest money market fund with $12 billion in assets, will allow only customers with accounts established before March 14 to continue making investments. Washington account executive Paul Sweeney said the company had not yet decided whether to set up a separate fund for new investors.
E. F. Hutton's fund is also closed to new accounts while the firm studies the situation.
Dean Witter already has filed for permission to establish a fund separate from its intercapital Liquid Assets Fund, now yielding 14.05 percent. The new fund is expected to pay investors one or 1.5 percentage points less.
Dreyfus said yesterday its new fund will yield an estimated 2 percentage points under the 13.8 percent currently paid by its Liquid Assets Fund.
Fund officials said the refusal to accept new accounts was an effort to preserve the current yields of their customers and thus avoid the possibility of lawsuits by disgruntled investors whose yields would otherwise have been cut by the Federal Reserve action. Last Friday the Fed declared that money market funds would henceforth be subject to a "special deposit" of 15 percent -- in effect, a type of reserve requirement -- on new assets.
Until last week the Fed had steadfastly refused to put reserve requirements on money market funds, contending they were unnecessary. Trade associations for the banking and savings industry then announced they would redouble their efforts to get curbs on money market funds which are draining their resources. In announcing the change, Fed Chairman Paul Volcker left little doubt that the board had become convinced that the outflow had reached a critical stage.
He said he expected the new requirement would restrain the growth of money market funds, which now have more than $60 billion in assets. He explained that the reserve requirement would bring the yields in new funds down to the equivalent of those paid on money market certificates issued by banks and thrifts.