U.S. Securities and Exchange Commission Commissioner Daniel M. Gallagher gave "Remarks before the U.S. Chamber Center for Capital Markets Competitiveness. He indicated that a money market reform proposal is expected before the end of the first quarter and he gave qualified support for a floating NAV option during the Q&A at the end of the speech. (See the video here on C-SPAN.) Gallagher said, "You can say this about the Dodd-Frank Act: it's a perfect example of not letting a crisis go to waste. Indeed, the Act is a model of the new paradigm of legislation -- a core concept, in this case regulatory reform, overwhelmed by a grab bag of wish-list items. What continues to amaze me about the Act is not only what it covers in its 2319 pages, but also the crucial regulatory issues it does not address. The juxtaposition of the two is jarring. The Act tasks the SEC with a mandate to create unprecedented new disclosure rules relating to conflict minerals from the Congo -- but not to reform money market mutual funds, which, we were later told, are ticking time bombs of systemic risk."
He explained, "[W]e could be spending our time in a far more productive manner, focusing on mandates that are critically important such as those in the JOBS Act, as well as addressing the SEC's basic "blocking and tackling." Indeed, one personal frustration of mine has been the Commission's inability to fully implement what I believe is the most useful and important provision of the Dodd-Frank Act, the Section 939A mandate to remove all references to Commission-registered credit rating agencies, formally referred to as nationally recognized statistical rating organizations, from all agency regulations. This clear and direct mandate is actually responsive to one of the core problems underlying the financial crisis -- overreliance on inaccurate credit ratings by both investors and regulators -- yet the most important rules continue to include such references."
Gallagher continues, "Meanwhile, FSOC, charged with averting the next financial crisis, is apparently spending more time hectoring the Commission -- a purportedly "independent" agency -- on the reform of money market funds -- an issue that falls directly, and solely, within the Commission's regulatory sphere of responsibility but that was somehow not important enough to be addressed by the Dodd-Frank Act -- than they are focusing on the bubbles that have the potential to cause another crisis. On the issue of money market funds, I am happy to report that Craig Lewis and his fine staff in our economic analysis division have completed the rigorous study and economic analysis that a bipartisan majority of Commissioners had long asked for in advance of considering new rulemaking. We are currently working with the economic analysis staff and the Division of Investment Management to shape a reform proposal based on that rigorous economic analysis."
He added, "Separately, I'm encouraged by Chairman Walter's commitment, even as we continue to implement the Dodd-Frank mandates, to focusing as well on the everyday, core blocking-and-tackling issues that affect investors most. In the coming months, I look forward to working together to address the Commission's priorities -- both short-term priorities such as the long-overdue amendments to the Commission's net capital and customer protection rules commonly referred to as the Onnig amendments and longer-term ones such as engaging in a formal, thorough evaluation of equity market structure issues, last done in a comprehensive manner in the Commission's Market 2000 Report all the way back in 1994."
Finally, Gallagher's speech said, "For all the recent talk of gridlock in a divided Commission, I believe that notwithstanding our party and policy differences, this Commission is fully united in its desire to carry out the Commission's mandate to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. With a clear, data and analysis-based understanding of the problems we face and the complexity of their underlying causes coupled with a deliberate, measured allocation of our resources, I believe that the Commission can accomplish great things, and can avoid the mistakes of the past, over the course of the coming year."
MarketWatch wrote on the speech, "Reform of the $2.7 trillion money-market fund industry will be one of the "primary issues" that the Securities and Exchange Commission tackles in the coming months, a Republican commissioner on the agency said Wednesday. "We at the commission can and have been proceeding ... and I think there is sort of a new spirit at the commission, working with the staff, working with industry, working amongst the commissioners and a consensus that we need to take some actions," Republican commissioner Dan Gallagher said after addressing the U.S. Chamber of Commerce. Gallagher reiterated his view that the SEC should explore abandoning what's known as a stable Net-Asset-Value for money-market funds and permit a floating NAV instead. However, he said that "there are pretty serious tax and accounting issues that need to be addressed and haven't been addressed."
