On June 2, we wrote about the "CFTC Soliciting Public Comment on Changes to Permitted Investments," which described the Commodity Futures Trading Commission's notice "seeking public comment on possible changes to its regulations regarding the investment of customer funds" including removing money market mutual funds as eligible investments. The comment period has now ended, and the responses appear overwhelmingly in favor of keeping money market mutual funds as permitted investment options.
The comments posted on the CFTC's website include responses from the following: Crane Data, Federated Investors, The Dreyfus Corporation, Futures Industry Association, Investment Company Institute, MF Global Inc., Newedge USA LLC, FCStone Group Inc., CME Group Inc., National Futures Association, and Treasury Strategies Inc..
The ICI wrote, "The Investment Company Institute appreciates the opportunity to comment on the CFTC's advance notice or proposed rulemaking on possible changes to its regulations regarding the investment of customer funds segregated pursuant to Section 4d of the Commodity Exchange Act and funds held in an account subject to Regulation 30.7. In response to the market events of September 2008, the CFTC is reviewing 'permitted investments,' including the use of money market funds, under CFTC regulations. We strongly believe that money market funds continue to be an investment 'consistent with the objectives of preserving principal and maintaining liquidity' and, therefore, should remain a permitted investment under these regulations."
Federated's letter said, "Money market funds merit continued inclusion as 'permitted investments' because they are subject to a comprehensive regulatory scheme under the Investment Company Act of 1940, SEC Rule 2a-7 and CFTC Regulation 1.25, which collectively provides liquidity and safety to customer money.... The Reserve Primary Fund was an isolated incident resulting from a unique set of circumstances and should not guide the CFTC's policies regarding the inclusion of money market funds as 'permitted investments' under Regulation 1.25."
Finally, Crane Data's Peter Crane wrote the CFTC, "I believe the record shows that money market mutual funds continue to be an investment 'consistent with the objectives of preserving principal and maintaining liquidity' and that they should remain allowable investments.... Every single heretofore conservative investment class, with the possible exception of Treasury securities, experienced cases of losses and illiquidity at one point or another during the 'Great Subprime Liquidity Crisis'. But money market mutual funds, which represent a much larger market, and target, than any other eligible investment category ... experienced just a single case of loss ... and just a handful of liquidity issues. While Treasury securities provided safety, investors experienced substantial losses of interest income."
