The U.S. Securities and Exchange Commission's Director of the Division of Investment Management Andrew J. "Buddy" Donohue spoke Monday at the ICI 2008 Securities Law Developments Conference in Washington. His talk, entitled, "2008: Important Accomplishments, Meaningful Lessons and Getting Back to Basics," centered on money market mutual funds. Donohue says 2009 will see a "review of the money market fund model and its regulatory regime."
He says, "I expect that regulators and the fund industry will have a common goal of conducting a wholesale review of the money market fund model, its attributes and the regulatory requirements applicable to it and updating those regulatory requirements where and as necessary. I further expect that this endeavor will be guided by the fundamental principle that the money market fund model and its regulation should be tailored to best meet the liquidity and capital preservation needs of fund investors. It is with this principle in mind that I very much look forward to reviewing the recommendations of the ICI's Money Market Fund Working Group."
Donohue continues, "Events of the past year have been particularly challenging to money market fund managers, regulators and, most especially, money market fund investors. In 2008, we saw the first 'breaking of the buck' by a widely-held money market fund, and the impact and aftermath of that event continue to be assessed. It is essential that we take the experience of money market funds from the last several months and draw from it to consider important lessons. For instance, money market funds have twin goals of providing liquidity, typically on a same-day basis, and preserving capital to maintain a stable net asset value of $1.00. At times these goals can conflict."
He says, "Interestingly, our current money market fund regulations contain strong provisions related to credit quality, maturity and diversification. These provisions are geared toward preserving capital and enabling a money market fund to maintain a $1.00 NAV. Liquidity, on the other hand, has not been a particular focus of our money market fund regulations. It is liquidity, however, that has been one of the greatest challenges for money market funds since the beginning of the credit crisis in August 2007."
Finally, Donohue says, "But we also should remember that the money market arena saw some important accomplishments this past year. For one thing, many money market fund sponsors or their parent firms were willing to voluntarily step in and assist money market funds facing credit or liquidity challenges by entering into asset purchase or credit support arrangements. The Division staff has been active in working with the managers of money market funds as they have been coping with events of the past several months. I applaud the money market fund industry's willingness to voluntarily come to the support of funds when that support is structured to benefit all fund shareholders. And I applaud the Division staff for its timeliness, responsiveness and helpful assistance in working with money market firms."
