The mutual fund industry's trade group, the Investment Company Institute (ICI), has issued a press release and posted its comment letter to the SEC's Money Market Reform Proposals, and "is pleased to express its overall strong support for the Securities and Exchange Commission's proposed amendments to Rule 2a-7 and other rules that affect money market funds under the Investment Company Act of 1940. The amendments, which are similar to those recommended last March by the Institute's Money Market Working Group are designed to better enable money market funds to withstand certain short-term market risks, and to provide greater protections for investors in a money market fund that is unable to maintain a stable net asset value per share."

The ICI letter says, "The SEC and the industry have invested substantial time and resources in efforts to ensure the continued success of money market funds, products that are valued by investors and crucial to our economy. Pressures on money market funds have eased substantially since late 2008, reflecting the unprecedented steps taken by the federal government to buffer the money markets and strengthen financial institutions. Money market funds nevertheless continue to face considerable challenges."

It continues, "Owing to the monetary policy that the Federal Reserve is pursuing in order to bolster the economy, short-term interest rates, and thus yields on money market funds, remain very low. Indeed, yields remain so low that many advisers to these funds have had to offer significant fee waivers in order to ensure that yields on their funds do not fall below zero. In addition, demand for money market funds has weakened as investors, especially retail investors, have migrated to higher yielding alternatives, such as bank deposits. As a result, advisers are currently bearing a significant share of the costs of operating money market funds. Changes to money market fund regulation must take into account these continued challenges."

"We are therefore especially pleased that, for the most part, the proposed enhancements to money market fund regulation are well balanced and not an overreaction to 'tail events.' Indeed, we believe that, in general, the SEC's proposal should work well in prosperous times, as well as during periods of severe market instability or economic pressures. The SEC's proposed amendments, like the Working Group's recommendations, are designed to further strengthen an already resilient product. Specifically, the proposal would make improvements to money market fund regulation through explicit liquidity standards, stress testing, 'know your customer' procedures, shorter portfolio maturities, improved credit quality, and more disclosure," ICI says.

They add, "We thus offer our overall strong support for the proposal. We do, however, have a number of comments -- including those opposing certain aspects of the SEC's proposal. We also comment on certain ideas not proposed, but raised for comment, that would make more fundamental changes in the SEC's regulation of money market funds that, if implemented, would not only undermine the improvements noted above but create new and potentially far greater risks than those the SEC is seeking to avoid."

The ICI's 48-page letter also, "strongly oppose[s] different regulatory thresholds for money market funds depending on whether their investors are considered retail or institutional," opposes the illiquid securities change, supports the ban of second tier securities, and opposes the WAM limit of 60 days (and prefers 75 days). It adds, "We are particularly pleased that the SEC's proposal would not require money market funds to publicly disclose their shadow prices and the market-based prices of their portfolio securities. We believe that this information would not be helpful or informative to investors and could increase systemic risks.... We strongly oppose eliminating the ability of money market funds to use the amortized cost method of valuation because the stable net asset value provides far more benefits to money market fund investors than a floating net asset value; the floating net asset value could lead to substantial and far reaching negative consequences for the money market fund industry; and a floating net asset value is unlikely to reduce systemic risk."

A number of additional comment letters have been posted on the SEC's website, so look for more excerpts in coming days.

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