Federated Investors took the lobbying over possible money market mutual fund reform proposals to the next level this week with a direct plea to investors and friends of the firm and the launch of a new website to write comments to U.S. Securities and Exchange Commission Chairman Mary Schapiro and Assistant to the President for Economic Policy Gene Sperling, Save Money Market Funds. Judging from the comment letters beginning to appear on the SEC's "President's Working Group Report on Money Market Fund Reform (Request for Comment)" website page, it appears to be having some impact. The e-mail letter from Federated President & CEO J. Christopher Donahue says, "Dear Financial Professional, Over the past 40 years, money market funds have become a staple of the US economy, used by millions of investors, businesses, state/local governments and non-profit organizations as a stable, efficient and liquid cash management vehicle. Unfortunately, if Securities and Exchange Commission Chairman Schapiro has her way, that may not be the case for much longer, as the SEC is poised to consider a set of proposals that would be the death knell for money market funds."
He continues, "Federated has been very active in the battle to save money market funds and I am pleased to report that we are not alone. In addition to a host of financial services companies, hundreds of corporations, business groups, state/local governments and non-profits have written to the SEC to express their support for money market funds and to oppose Chairman Schapiro's proposals."
Donahue explains, "There are three proposals being promoted by Chairman Schapiro and other Washington regulators -- a floating NAV, redemption restrictions and capital requirements -- each of which would destroy the very foundations that make money market funds so effective and popular. Replacing the stable $1.00 net asset value, which has been the hallmark of money funds, with a floating rate NAV would create accounting nightmares for all users, requiring the tracking and reporting of fractional changes in share price each time shares are bought or sold. Instituting redemption restrictions would prohibit money fund users from having full access to their investments when they want it or need it. Such a freeze would also cripple sweep accounts, check-writing and a number of others features that money market fund users depend on. Requiring money market funds to maintain "capital buffers" or reserves would further limit the attractiveness of money market funds, particularly in the current low interest rate environment."
Finally, he goes on to say, "It is crunch time. The SEC is getting ready for a public meeting on these proposals. We need the help of everyone who knows the benefits of money market funds and their importance to the economy. Federated has developed a website that provides you the ability to contact the SEC and other officials to let your voice be heard in support of money market funds. You can visit www.savemoneymarketfunds.org to tell the Washington regulators not to destroy money market funds. I truly appreciate our relationship and your consideration of helping Federated and money fund users everywhere in this important matter."
The pre-packaged SEC letter available through the SaveMoneyMarketFunds.org website says, "Dear Chairman Schapiro: As someone who has depended on the utility, stability and liquidity of money market funds (MMFs), I am writing to express my strong opposition to the various regulatory proposals being considered by the SEC. Each would destroy a fundamental reason why the funds have become such a popular and useful cash management product. Contrary to what some regulators may want us to believe, the vast majority of users well understand that MMFs are investments which are not guaranteed by the government or anyone else. I have found that only money market funds sold by bank brokerage affiliates seem to do a less than stellar job of explaining money market funds. This should be focused upon separately and apart from this unnecessary regulation attempt."
It continues, "One of the hallmarks of MMFs is the stable, $1.00 net asset value. A move to adopt a floating NAV would create accounting nightmares for users, requiring us to track increases or decreases (literally fractions of a penny) in share price each time shares are bought or sold. The liquidity of MMFs is an equally important aspect of their utility. Instituting redemption restrictions of any kind, at any time, is just a bad idea. I know of no other widely used cash management vehicle that tells customers that they may not have full access to their investments when they want it or need it. Such a freeze would also cripple sweep accounts, fiduciary accounts and a number of other popular money market fund benefits. Finally, any proposal to require money market funds to maintain "capital buffers" or reserves would further limit the attractiveness of the investment. This would only serve to decrease the yield on the fund while such a buffer was being built. In the current rate environment such a concept seems untenable and to fail even the most rudimentary cost/benefit analysis."
Finally, the standard comment adds, "Given the significant negative impact that any of these proposals will have on those who rely on money market funds, I hope that the SEC will take my views into consideration. I ask you to look closely at the fallout that would ensue and abandon the effort to regulate MMFs out of existence. Money market funds are working well and none of the alternatives available provide the same flexibility, yield and value."