The Investment Company Institute said today that its "Board of Governors has received a report from the Money Market Working Group and has unanimously endorsed the Group's recommendations concerning new regulatory and oversight standards for money market funds." No major changes were proposed, and, unsurprisingly, the report opposes floating NAVs, insurance and capital reserves for money funds. Suggestions of note include adding a 5% 1-day and 20% 7-day liquidity mandate, reducing the WAM maximum from 90 to 75 days, adding monthly client concentration and portfolio holding disclosures, eliminating investment in "Second Tier" securities, and implementing stess-testing of portfolios. ICI will host a conference call this morning at 11:00 a.m. (call 888-950-8045, passcode 6623219) to discuss the report, which is available here.
Paul Schott Stevens, President and CEO of ICI, says in the report, "Drawing on the difficult experience of the last year and a half, we also have developed a series of recommendations designed, among other things, to make money market funds more resilient in the face of extreme market conditions such as those encountered in September 2008.... It should be the goal of all money market funds to substantially implement these recommendations by September 18, 2009, when authorization for the Treasury Temporary Guarantee Program for Money Market Funds expires. This will provide additional assurance to money market investors and help facilitate an orderly transition out of the Guarantee Program." He adds, "I am extremely proud of this Report and the efforts of the Working Group. We look forward to working with regulators and other policymakers in the months ahead as they consider how to best address these issues."
John J. Brennan, Chairman of the Money Market Working Group and Chairman of The Vanguard Group, says "The recommendations respond directly to weaknesses in current money market fund regulation, identify additional reforms that will improve the safety and oversight of money market funds, and will position responsible government agencies to oversee the orderly functioning of the money market more effectively." He adds, "Money market funds are a key component of the money market, relied upon by individuals and institutions alike. We strongly believe that taken as a whole, these recommendations will greatly increase the resiliency of money market funds to the benefit of both investors and markets."
The ICI release says, "In a resolution adopted March 17, 2009, the Institute's governing body called for prompt implementation by all money market fund complexes of those practices recommended in the Report of the Money Market Working Group that do not require prior regulatory action. ICI formed the Money Market Working Group last fall to develop recommendations to improve the functioning and regulation of the money market and money market funds. Among other changes, the recommendations would for the first time require money market funds to meet new mandated daily and weekly minimum liquidity standards. The Money Market Working Group also recommends tightening the portfolio maturity limits currently applicable to money market funds and raising credit quality standards."
"The Board has given its strong approval to the reforms developed by the Money Market Working Group and deeply appreciates the Working Group's efforts," says John V. Murphy, ICI Chairman and Chairman of OppenheimerFunds. "The Board also has called for prompt implementation of these improved practices across the industry, pending regulatory action. In light of the significance of these recommendations to fund investors, ICI will encourage the SEC to require funds choosing not to implement these recommendations to disclose that fact to their investors."
The release adds, "The Working Group's recommendations are designed to strengthen and preserve the unique attributes of money market funds: safety, liquidity, and the convenience of a stable $1.00 net asset value (NAV). The new standards and regulations will ensure that money market funds are better positioned to sustain prolonged and extreme redemption pressures and that mechanisms are in place to ensure that all shareholders are treated fairly if a fund sees its NAV fall below $1.00."
