{"id":489,"date":"2013-06-03T10:50:53","date_gmt":"2013-06-03T14:50:53","guid":{"rendered":"http:\/\/www.c2ig.com\/?p=489"},"modified":"2013-06-03T10:50:53","modified_gmt":"2013-06-03T14:50:53","slug":"sec-tackles-money-market-reform-again","status":"publish","type":"post","link":"http:\/\/www.c2ig.com\/2013\/06\/sec-tackles-money-market-reform-again\/","title":{"rendered":"SEC tackles money market reform again"},"content":{"rendered":"
By Mark Schoeff Jr.<\/p>\n
Jun 2, 2013<\/p>\n
Nine months after the Securities and Exchange Commission failed to advance money market fund reform amid a storm of industry protest, it will try again this week \u2014 this time with a new leader at the helm.<\/p>\n
On Wednesday, the SEC, now headed by Mary Jo White, is slated to vote on a money fund proposal. The SEC’s first attempt, spearheaded by former Chairman Mary Schapiro, was abandoned last August.<\/p>\n
Ms. White, who was sworn in April 10, hasn’t revealed her position.<\/p>\n
In a speech at an Investment Company Institute conference this month, she said that the SEC’s goal is \u201cto preserve the economic benefits of the product while addressing potential redemption pressures and the susceptibility of these funds to runs \u2014 runs in which retail investors are especially likely to suffer losses.\u201d<\/p>\n<\/div>\n
It isn’t just the language that has soothed money fund advocates. It is also the SEC’s work over the past few months \u2014 under short-term Chairman Elisse Walter as well as Ms. White \u2014 to answer concerns of those who opposed Ms. Schapiro’s original proposal and to develop consensus.<\/p>\n
\u201cThat doesn’t guarantee a result we will like, but it does show the commission is working in a constructive manner,\u201d said Mike McNamee, chief ICI spokesman.<\/p>\n
The industry is concerned that previous attempts to reform money markets would make the funds less attractive to investors and less profitable to fund owners.<\/p>\n
One of the major players in the money fund debate is hopeful about the next round.<\/p>\n
\u201cI have an optimistic view that good policy in the end will win out,\u201d said J. Christopher Donahue, president and chief executive of Federated Investors Inc.<\/p>\n
\u201cSo far, I think [Ms. White’s] approach is very good,\u201d he said. \u201cShe has intellectual strength and will come at things in a thorough, do-your-homework way.\u201d<\/p>\n
In her short time in office, Ms. White has jumped into the money fund issue, according to Jerry Klein, managing director of Treasury Partners at HighTower Advisors LLC.<\/p>\n
\u201cShe certainly seems to be taking the time to get to know the product and understand the alternatives that have been put forth,\u201d he said. \u201cYet, at the end of the day, I don’t know whether her view on the topic will be any different than Mary Schapiro’s.\u201d<\/p>\n
Observers expect that the new proposal will include a provision to allow a floating net asset value for prime institutional money funds \u2014 those that invest mostly in commercial debt and are seen as riskier funds.<\/p>\n
If at least three of the five commission members approve releasing the proposal, it will be open to a 60- or 90-day comment period after it is published in the Federal Register. The SEC will review the comments and then proceed to a final rule, which requires a majority.<\/p>\n
In August, Ms. Schapiro presented a plan to strengthen rules surrounding the funds, which total about $2.6 trillion.<\/p>\n
It would have allowed NAVs to fluctuate with changing market conditions for a wider range of funds instead of staying fixed at the traditional $1.<\/p>\n
Another approach was to require funds to maintain capital reserves and institute redemption controls.<\/p>\n
Ms. Schapiro argued that precipitous withdrawals from money funds \u2014 such as those that caused the collapse of the Reserve Primary Fund in 2008 \u2014 continue to represent a systemic risk to financial markets.<\/p>\n
The money market fund industry and three SEC members \u2014 Luis Aguilar, Daniel Gallagher and Troy Paredes \u2014 opposed her plan. A couple of months later, the Financial Stability Oversight Council prodded the SEC to try again.<\/p>\n
\u201cMary Jo White brings lighter baggage to her relationship with the industry on the issue,\u201d said Joan Ohlbaum Swirsky, counsel at Stradley Ronon Stevens & Young LLP and author of \u201cThe Guide to Rule 2a-7: A Map Through the Maze for the Money Market Professional.\u201d<\/p>\n
\u201cMary Schapiro’s views were more baked in. She took money funds as a signature issue \u2014 and she pushed for reform in August when other commissioners did not support reform,\u201d Ms. Swirsky said.<\/p>\n
In addition to the focus on prime institutional funds, she anticipates that the SEC proposal will include alternatives such as a \u201cgate\u201d \u2014 combined with a liquidity fee \u2014 that fund board directors could lower to prevent withdrawals during times of economic stress.<\/p>\n
The gate-and-fee system is popular in the industry.<\/p>\n
\u201cThat structure would go much further in preventing a run than a floating NAV,\u201d Mr. Klein said.<\/p>\n
The idea of a floating NAV, even for prime institutional funds only, doesn’t sit well with Neal Solomon, managing director of WealthPro LLC.<\/p>\n
Such a mechanism would undermine the stable value that makes the vehicles popular, he said.<\/p>\n
\u201cThe only thing that makes sense to me is to have some kind of private insurance that is operated in coordination with the industry,\u201d Mr. Solomon said.<\/p>\n
Financial advisers contend that money funds play a key role in client portfolios as a location for collecting dividends and proceeds from sales of holdings or building up funds for a big purchase.<\/p>\n
\u201cAt any point in time, they could have significant money,\u201d said Diahann Lassus, president of Lassus Wherley and Associates PC. \u201cIt is more about the safety than it is about the returns.\u201d<\/p>\n
But the returns, too, could go up \u2014 making the function of money funds more valuable, according to Martin Hopkins, president of Hopkins Investment Management LLC.<\/p>\n
\u201cWhen interest rates come back, I believe you’ll get a better return from money market funds than you will from cash interest,\u201d he said.<\/p>\n","protected":false},"excerpt":{"rendered":"
By Mark Schoeff Jr. Jun 2, 2013 Nine months after the Securities and Exchange Commission failed to advance money market fund reform amid a storm of industry protest, it will try again this week \u2014 this time with a new … Read more<\/a><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[3],"tags":[],"acf":[],"_links":{"self":[{"href":"http:\/\/www.c2ig.com\/wp-json\/wp\/v2\/posts\/489"}],"collection":[{"href":"http:\/\/www.c2ig.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.c2ig.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.c2ig.com\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"http:\/\/www.c2ig.com\/wp-json\/wp\/v2\/comments?post=489"}],"version-history":[{"count":1,"href":"http:\/\/www.c2ig.com\/wp-json\/wp\/v2\/posts\/489\/revisions"}],"predecessor-version":[{"id":490,"href":"http:\/\/www.c2ig.com\/wp-json\/wp\/v2\/posts\/489\/revisions\/490"}],"wp:attachment":[{"href":"http:\/\/www.c2ig.com\/wp-json\/wp\/v2\/media?parent=489"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.c2ig.com\/wp-json\/wp\/v2\/categories?post=489"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.c2ig.com\/wp-json\/wp\/v2\/tags?post=489"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}