Posts Tagged ‘Money market funds’

Money Market Fund Reform

Posted by Mary Jo White, Chair, U.S. Securities and Exchange Commission, on Friday July 25, 2014 at 9:00 am
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Editor’s Note: Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s remarks at a recent open meeting of the SEC, available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today’s [July 23, 2014] reforms will fundamentally change the way that most money market funds operate. They will reduce the risk of runs in money market funds and provide important new tools that will help further protect investors and the financial system in a crisis. Together, this strong reform package will make our financial system more resilient and enhance the transparency and fairness of these products for America’s investors.

…continue reading: Money Market Fund Reform

Strengthening Money Market Funds to Reduce Systemic Risk

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Thursday July 24, 2014 at 9:20 am
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Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at a recent open meeting of the SEC; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [July 23, 2014], the Commission considers adopting long-considered reforms to the rules governing money market funds. I commend the hard work of the staff, particularly the Division of Investment Management and the Division of Economic and Risk Analysis (“DERA”), who worked tirelessly to present these thoughtful and deliberate amendments. It is well known that the journey to arrive at the amendments considered today was a difficult one, and I can confidently say that this has been, at times, perhaps one of the most flawed and controversial rulemaking processes the Commission has undertaken.

…continue reading: Strengthening Money Market Funds to Reduce Systemic Risk

Embracing Sponsor Support in Money Market Fund Reform

Editor’s Note: Jill E. Fisch is Perry Golkin Professor of Law and Co-Director of the Institute for Law & Economics at the University of Pennsylvania Law School.

Money market funds (MMFs) have, since the 2008 financial crisis, been deemed part of the nefarious shadow banking industry and targeted for regulatory reform. In my paper, The Broken Buck Stops Here: Embracing Sponsor Support in Money Market Fund Reform, I critically evaluate the logic behind current reform proposals, demonstrating that none of the proposals is likely to be effective in addressing the primary source of MMF stability—redemption demands in times of economic resources that impose pressure on MMF liquidity. In addition, inherent limitations in the mechanisms for calculating the fair value of MMF assets present a practical limitation on the utility of a floating NAV. I then offer an unprecedented alternative approach—mandatory sponsor support. My proposal would require MMF sponsors to commit to supporting their funds as a condition of offering a fund with a fixed $1 NAV.

…continue reading: Embracing Sponsor Support in Money Market Fund Reform

An Informed Approach to Issues Facing the Mutual Fund Industry

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Thursday April 10, 2014 at 9:22 am
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Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at the Mutual Fund Directors Forum’s 2014 Policy Conference; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

As a practicing securities lawyer for more than thirty years, I have in the past advised boards of directors, including mutual fund boards, and I am well acquainted with the important work that you do. I also understand the essential role that independent directors play in ensuring good corporate governance. As fiduciaries, you play a critical role in setting the appropriate tone at the top and overseeing the funds’ business. Thus, I commend the Mutual Fund Directors Forum’s efforts in providing a platform for independent mutual fund directors to share ideas and best practices. Improving fund governance is vital to investor protection and maintaining the integrity of our financial markets.

…continue reading: An Informed Approach to Issues Facing the Mutual Fund Industry

The SEC in 2014

Editor’s Note: Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s remarks to the 41st Annual Securities Regulation Institute Conference; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

For nearly 80 years, the Securities and Exchange Commission has been playing a vital role in the economic strength of our nation. Year after year, the agency has steadfastly sought to protect investors, make it possible for companies of all sizes to raise the funds needed to grow, and to ensure that our markets are operating fairly and efficiently.

That is our three-part mission.

But, while commitment to this mission has remained constant and strong over the years, the world in which we operate continuously changes, sometimes dramatically.

When the Commission’s formative statutes were drafted, no one was prepared for today’s market technology or the sheer speed at which trades are now executed. No one dreamed of the complex financial products that are traded today. And, not even science fiction writers would have bet that individuals would so soon communicate instantaneously in so many different ways.

…continue reading: The SEC in 2014

SEC Unanimously Votes to Propose Money Market Funds Reforms

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday June 22, 2013 at 11:18 am
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Editor’s Note: The following post comes to us from Frederick Wertheim, partner focusing on investment management and broker-dealer regulation at Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication.

On June 5, 2013, the SEC voted unanimously to propose alternatives for amending rules that govern money market mutual funds under the Investment Company Act of 1940. Two alternative reforms to rule 2a-7 under the Investment Company Act of 1940 could be adopted separately or combined into a single reform package:

  • Alternative One: Floating Net Asset Value (“NAV”): The proposal would require all institutional prime money market funds to sell and redeem shares based on the current market value of the fund’s portfolio securities, rounded to the fourth decimal place, rather than at a $1.00 stable share price. Retail and government money market funds would be exempt from the floating net asset value requirement and would be allowed to continue using the penny-rounding method of pricing to maintain a stable share price but would not be allowed to use the amortized cost method to value securities.
  • Alternative Two: Liquidity Fees and Redemption Gates: Money market funds, other than government money market funds, would be required to impose a 2% liquidity fee if the fund’s level of weekly liquid assets fell below 15% of its total assets, unless the fund’s board of directors (a “Board”) determined that it was not in the best interest of the fund or that a lesser liquidity fee was in the best interests of the fund. After a fund has fallen below the 15% weekly liquid assets threshold, the Board would also be able to temporarily suspend redemptions in the fund for no more than 30 days in any 90-day period.

…continue reading: SEC Unanimously Votes to Propose Money Market Funds Reforms

Striving to Restructure Money Markets Funds to Address Potential Systemic Risk

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Thursday June 6, 2013 at 9:20 am
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Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s statement at a recent open meeting of the SEC; the full text is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [June 5, 2013], the Commission considers amending the rules that govern money market funds to address potential systemic risks. Before I begin, I would like to recognize the efforts of the staff throughout the SEC, especially the Division of Investment Management and the Division of Risk, Strategy, and Financial Innovation. I acknowledge and appreciate the staff’s good work in examining the 2010 amendments to Rule 2a-7 and the staff’s report, which concluded that, among other things, the 2010 amendments would not have been adequate to prevent the systemic risks that we saw in 2008. This report has resulted in the much-improved proposal that is before us today.

The staff’s work is a testament as to why the SEC should take the helm of matters that are within its jurisdiction. I appreciate that the Financial Stability Oversight Council (“FSOC”) recently said as much in its 2013 Annual Report. [1] The SEC’s expertise brings a clear-eyed experience and practical knowledge that can target needed change, while being mindful of unintended consequences.

I am supportive of the staff’s recommendations and will first put the proposed amendments in context, and then highlight a few items.

…continue reading: Striving to Restructure Money Markets Funds to Address Potential Systemic Risk

Recent Developments in Money Market Funds

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Friday December 21, 2012 at 9:58 am
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Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on a statement by Commissioner Aguilar available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

There have been recent developments related to the Securities and Exchange Commission’s consideration of potential reform of money market funds that I would like to highlight.

On November 30, 2012, the SEC staff delivered to the Commission its report delving deeper into the causes of investor redemptions in 2008, the efficacy of the Commission’s 2010 amendments to strengthen Rule 2a-7 (the principal rule that governs money market funds), and the potential impacts of future reform on issuers and investors. This is a welcome development. As I previously stated, I have been requesting this analysis so that it could inform the dialogue as to any further money market fund reform. [1] The staff’s report is a response to a request made in mid-September by a majority of the Commission (Commissioners Aguilar, Paredes and Gallagher) that asked the Division of Risk, Strategy, and Financial Innovation to conduct a study to answer a series of questions intended to inform the continuing dialogue.

I look forward to the staff’s report being made public, so that the Commission can benefit from the public dialogue.

There have also been developments in the consideration of the potential impact of assets migrating from existing transparent, regulated money market funds to opaque, unregulated funds (sometimes referred to as Liquidity Funds) as a result of structural changes to money market funds.

…continue reading: Recent Developments in Money Market Funds

Not All Money Market Funds Are Equal

Posted by Robert C. Pozen, Harvard Business School, on Monday December 17, 2012 at 12:00 pm
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Editor’s Note: Robert Pozen is a senior lecturer at Harvard Business School and a senior fellow at the Brookings Institution. This post is based on an article by Mr. Pozen and Theresa Hamacher that originally appeared in the Financial Times.

There is a sensible compromise to the debate over money market fund reform that regulators should seriously consider: requiring a fluctuating share price for some money market funds owned by institutional investors, but not for those owned by retail investors. Currently, all money market funds may use a fixed share price – known as the “net asset value”, or NAV – at one dollar per share, subject to strict conditions.

Regulators have argued that a fixed NAV creates systemic risk in the financial system and misleads investors into thinking their investment is guaranteed. They believe that money market funds should instead calculate their NAV daily based on the market value of their investments, as stock and bond mutual funds do – meaning that the NAV may fluctuate from day to day. However, the fund industry argues that a fluctuating NAV would drastically undermine the utility of money market funds. Most investors use money market funds as an alternative to bank deposits, so most investors require the convenience and liquidity of a fixed-dollar account. Additionally, the industry points out that only two money market funds – both institutional – have ever caused any investor losses by “breaking the buck”.

…continue reading: Not All Money Market Funds Are Equal

Money Market Funds: FSOC Proposes Reforms

Posted by Dwight C. Smith, Morrison & Foerster LLP, on Sunday December 9, 2012 at 10:11 am
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Editor’s Note: Dwight C. Smith is a partner at Morrison & Foerster LLP focusing on bank regulatory matters. This post is based on a Morrison & Foerster client alert by Jay Baris.

On November 13, 2012, the Financial Stability Oversight Council (FSOC), faced with a Securities and Exchange Commission (SEC) that has been deadlocked over whether or how to address concerns about money market funds (MMFs), voted unanimously to propose three MMF reforms. The vote was the FSOC’s first exercise of its power under section 120 of the Dodd-Frank Act to recommend heightened regulatory standards to financial regulatory agencies. If finalized, today’s proposal will result in a recommendation that the SEC act on at least one of the reforms. [1]

Last August, SEC Chairman Mary Schapiro, in a controversial decision, tabled proposed rulemaking on MMFs because of the lack of support from three Commissioners of the SEC. In a letter sent in late September, Treasury Secretary Timothy Geithner urged the FSOC members at their November meeting to take up MMF reform through their section 120 powers. According to Secretary Geithner at today’s meeting, the FSOC’s decision was taken on the recommendation of Chairman Schapiro.

The proposal from the FSOC presents three options for MMF reform, two of which were before the SEC in August, and requests public comment during the 60 days following publication of the proposal in the Federal Register. The FSOC does not regard the three options as mutually exclusive and thus could recommend more than one to the SEC. The three options are as follows:

…continue reading: Money Market Funds: FSOC Proposes Reforms

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