SD-05.13 — Cash & Money-Market Portfolio Management

Business Domain: BD-05 Portfolio Management (Front office) · Applies: BOTH

Purpose

Runs a cash and money-market allocation as a managed asset class — a deliberate, return-seeking sleeve of short-dated, high-quality, highly-liquid instruments, sized by the asset-allocation decision and run to a stability, liquidity and yield objective in that order of priority. It is the implementation-and-maintenance capability for the cash sleeve: once strategy decides how much the portfolio should hold in cash and money markets, SD-05.13 selects the instruments, manages the maturity and credit profile, and keeps the sleeve aligned to its constraints. The same discipline runs a dedicated money-market product (a government, prime or tax-exempt money-market fund) for an institution that offers one.

Cash and money markets is a discrete asset class — a governed allocation segment, not a residual of fixed income — and its investing discipline is its own: the dollar-weighted average maturity (WAM) and average life (WAL) limits, the credit-quality and concentration constraints, the daily and weekly liquid-asset minimums, and the stable-value mechanics (constant, low-volatility and variable net-asset-value structures, with a shadow NAV watched against the stable strike). That discipline is what defines this Service Domain and distinguishes it from general portfolio construction. It is asset-class-neutral in who holds it: it applies wherever a mandate carries a cash or money-market sleeve — a multi-asset portfolio’s liquidity allocation, an asset owner’s cash segment, or a money-market product run for clients. Its weight varies by archetype: it is core for the institution that runs a dedicated money-market product or a standing liquidity allocation, and only partial for the wealth manager, where the client cash sleeve is small.

Service Operations

Implement the cash allocation — select the money-market instruments the allocation calls for — government bills, commercial paper, certificates of deposit, repo, short-dated credit, money-market-fund holdings — against the sleeve’s stability, liquidity and yield objective.
Manage the maturity profile (WAM / WAL) — keep the sleeve within its dollar-weighted average maturity and average life limits, laddering maturities so the profile stays inside the constraint as instruments roll.
Manage the credit and liquidity constraints — hold the sleeve within its eligible-credit-quality and issuer-concentration limits and its daily and weekly liquid-asset minimums, so the sleeve can meet redemptions and stay high-quality.
Run the stable-value mechanics — for a constant or low-volatility-NAV sleeve, maintain the stable strike, watch the shadow (mark-to-market) NAV against it, and manage the deviation within the permitted band; for a variable-NAV sleeve, strike the floating value.
Operate the liquidity-management tools — calibrate and apply the anti-dilution and liquidity-fee mechanics that pass the cost of meeting large redemptions to the redeeming investor (the liquidity fee a money-market product applies above its net-redemption threshold; an anti-dilution levy or swing factor where the regime provides one).
Manage yield within constraint — optimise the sleeve’s return inside the stability and liquidity limits, taking duration and credit positioning only to the extent the constraints permit.
Monitor the held sleeve — track the live cash and money-market exposure against the allocation target, the maturity and credit limits, and the liquid-asset minimums, and flag drift for correction.

Inputs and outputs

Inputs: the cash and money-market allocation target from BD-01 (SD-01.4 strategic allocation, or the liquidity-tier policy from SD-01.11 where the cash sleeve is the liquid tier); money-market instrument and short-dated-credit market data and yield curves; the sleeve’s mandate constraints (WAM / WAL, credit quality, concentration, liquid-asset minimums); the credit assessment of eligible issuers from SD-02.3.
Outputs: the cash and money-market sleeve positions, the maturity ladder and the sleeve-versus-constraint monitoring — consumed by BD-06 Trading & Execution (the trades to implement and roll the sleeve), SD-05.2 Portfolio Management & Monitoring (the aggregate portfolio view), BD-08 Valuation & Pricing (the shadow-NAV and stable-strike valuation), and BD-09 Performance & Analytics (the cash-sleeve return).

Entities

Consumes: Instrument / Asset (E-02) for the money-market instruments, Portfolio / Mandate (E-03), Holding / Position (E-04, book = ibor), Valuation (E-07, method = observable_price for the marked instruments and the shadow NAV), Risk Limit (E-16, the WAM / WAL, credit-quality and liquid-asset constraints); the SD-01.4 cash allocation target and the SD-01.11 liquidity-tier policy.
Owns: none — the money-market positions are recorded as holdings (E-04) and the sleeve is run against the portfolio, valuation and risk-limit entities other Service Domains own.

Standards

SEC Rule 2a-7 (Investment Company Act of 1940) — the US money-market-fund regime: the eligible-security, maturity (WAM / WAL), credit-quality and diversification rules, the daily and weekly liquid-asset minimums, the mandatory liquidity fee for institutional prime and tax-exempt funds above the net-redemption threshold, and the stable-value and shadow-NAV mechanics.
The EU Money Market Fund Regulation (MMFR) — the European regime governing CNAV, LVNAV and VNAV money-market funds, their liquidity-buffer and eligible-asset rules, and the liquidity-management tools (the ESMA-proposed reforms decouple the liquidity thresholds from the gates-and-fees mechanics and tighten the LVNAV stable-value treatment).
The money-market-fund rating regimes — the rating-agency methodologies for money-market and principal-stability fund ratings (e.g. S&P Global Ratings’ AAAm scale, the Moody’s and Fitch equivalents) that codify the WAM / WAL, credit and liquidity discipline a rated sleeve runs to.
The CFA Institute fixed-income and liquidity-management body of knowledge — the money-market instrument set, the components of money-market return, and the laddering and credit-and-liquidity discipline of a short-duration sleeve.

Open extensions

The stable-value sub-model — the constant, low-volatility and variable-NAV mechanics, the shadow-NAV deviation band, and the liquidity-fee and anti-dilution calibration.
The boundary with SD-11.1 Cash Management when a portfolio holds both an invested cash-and-money-market sleeve and a separate pool of operational treasury cash.
The money-market-instrument reference sub-classification — whether a money-market interest, a CD or a CP warrants a finer instrument classification than the general instrument master carries.