As we learned from a Bloomberg article yesterday ("SEC Money-Market Rules to Be Stiffer Than Industry's"), the U.S. Securities and Exchange Commission Chairman Mary L. Schapiro gave a speech entitled, "Address to Mutual Fund Directors Forum Ninth Annual Policy Conference: Critical Issues for Investment Company Directors, which contained several paragraphs on money market funds.
Shapiro said, "Of particular interest to you as fund directors are the SEC's efforts to address investor confidence in money market funds. Approximately 770 SEC-registered money market funds hold nearly $4 trillion in investor assets. This sizable market is critically important for both retail and institutional investors who use money market funds as a cash management tool. It is also important for banks, corporations, municipalities and other borrowers for whom money market funds are a key source of short term credit."
She continued, "I know that many of you in this room have spent considerable time since August 2007 focused on money market fund issues and the impact of certain investments, including structured investment vehicles, on your funds' net asset values. Despite the turmoil in the credit markets in 2008 and the first 'breaking of the buck' by a widely held money market fund last fall, aggregate money market fund assets actually increased by $750 billion last year, representing a 23 percent increase in assets. However, the impact on investor confidence resulting from the events of last year can be seen in the change in composition of money market fund assets during 2008."
"Assets of Treasury and government money market funds increased by more than $700 billion or 90 percent. On the other hand, assets of prime funds, which invest in corporate commercial paper, declined by $55 billion or 3 percent. Thus, there was a significant 'flight to quality' as investors pulled their money from other segments of the market and placed it in Treasury and government money market funds, expecting a relatively safe and liquid investment," she told the fund directors.
Shapiro added, "In light of the events of last fall, it is essential that the SEC comprehensively re-examine the money market fund regulatory regime. We should do so with a view toward enabling money market funds to afford investors the relatively safe and liquid investment that they expect from an SEC-registered money market fund. Our staff is closely examining the credit quality, maturity and liquidity provisions currently applicable to money market funds to consider ways to strengthen their requirements and better protect money market fund investors."
"I have asked the staff to present a proposal to the Commission in June. In addition, we are carefully reviewing whether more fundamental changes are needed in money market fund regulation, including whether floating rate net asset values for money market funds would better protect investors from potential abuses and runs on the funds."
Finally, she said, "The report on money market reform recently issued by the ICI Money Market Fund Task Force represents an important and very constructive first step toward reconsideration of money market fund regulations. But it is just that, a first step. The SEC's examination of the issues and our eventual reforms are likely to extend beyond those advocated by the ICI's report. As front row spectators and on-the-ground participants for many of the challenges that money market funds have faced since August 2007, your input will be greatly valued as the SEC pursues money market reform to better protect investors."
Look for more comments later this week, as Shapiro is also scheduled to speak Friday morning (May 8) at ICI's General Membership Meeting in Washington.
