This morning at 10:00 a.m. The Securities & Exchange Commission will hold a public "Sunshine Act" meeting in its Auditorium (Room L-002) in Washington, to "consider whether to propose amendments governing the operations of money market funds." (See the announcement here.) We hope and expect that feedback at the meeting and reaction following the SEC's issuance of proposed amendments to Rule 2a-7 the Investment Company Act of 1940, the regulations governing money market funds, will convince the SEC to keep the changes sane and moderate. We expect the isolated and limited discussions surrounding radical changes, such as floating rate NAVs, $10 NAVs, private insurance pools, credit derivative protections, and bank-like regulations, to fade as regulators and legislators realize that these could cause tremendous harm, and would not have prevented the current crisis.
We wrote about the new proposals last Wednesday in the Crane Data News piece, "SEC Proposals for Money Fund Reg Changes to Be Mild Says Bloomberg". This discussed the Bloomberg article, "SEC Said to Back Money Funds on Changes to Protect Investors," which said, "The U.S. Securities and Exchange Commission may support most of the proposals by asset managers to make money-market funds safer after last year's collapse of Reserve Primary Fund led to a run on the $3.5 trillion industry, according to people with knowledge the matter."
Last week, the Obama Treasury also weighed in on regulatory changes in its white paper entitled, "Financial Regulatory Reform: A New Foundation". As we wrote in Crane Data News "Treasury's 'Financial Regulatory Reform: A New Foundation' on MMFs", "The SEC should move forward with its plans to strengthen the regulatory framework around MMFs to reduce the credit and liquidity risk profile of individual MMFs and to make the MMF industry as a whole less susceptible to runs.... The President's Working Group on Financial Markets should prepare a report assessing whether more fundamental changes are necessary to further reduce the MMF industry's susceptibility to runs, such as eliminating the ability of a MMF to use a stable net asset value or requiring MMFs to obtain access to reliable emergency liquidity facilities from private sources."
Yesterday, we quoted JPM Securities' Alex Roever on the Treasury's white paper, "The report exhorts the SEC to strengthen the regulatory framework around money market funds and specifically mentions five areas of concentration: * require MMFs to maintain substantial liquidity buffers; * reduce the maximum weighted average maturity of MMF assets; * tighten the credit concentration limits applicable to MMFs; * improve the credit risk analysis and management of MMFs; and, * empower MMF boards of directors to suspend redemptions in extraordinary circumstances to protect the interests of fund shareholders."
