Monday afternoon, the Investment Company Institute's President & CEO Paul Schott Stevens gives the opening keynote at Crane's Money Fund Symposium at the InterContinental Boston. Entitled, "The Seventh-Inning Stretch: The State of Play for Money Market Funds," Steven's speech comments, "My topic today is the 'Washington and the New Regulatory Regime' for money market funds. This is an opportune time to check the scoreboard and see where we stand."
He explains, "Here are the points that I'd like to discuss with you today. First, the industry and the Securities and Exchange Commission have already scored some impressive gains in making money market funds more secure. We've worked together with a common goal -- to make money market funds more resilient under extreme market conditions, to ensure they can withstand another deep and widespread loss of liquidity in the money markets. ICI's Money Market Working Group offered responsible and innovative ideas for making these funds stronger, and the SEC built upon those concepts in its final Rule 2a-7 amendments.... I think those new rules are already making a difference.."
Stevens continues, "Second, we're not through with this process. In baseball terms, you might say we're in the seventh-inning stretch -- there's been a lot of action, but we still don't know how the final innings will play out. The biggest potential game-changer, of course, is the report that the President's Working Group on Financial Markets is expected to issue on money market funds. But we are also working with regulators on other fronts, including the Federal Reserve Bank of New York's efforts to strengthen the underpinnings of tri-party repurchase agreements."
He says, "A third point I'd like to make is that money market funds remain firmly opposed to proposals that would force them to abandon their stable per-share value. And we are not alone in that stance. America's businesses, along with state and local governments, are rallying in opposition to any suggestion that regulators would force money market funds off their stable $1.00 net asset value. The idea of floating these funds' value is likely to be discussed in the President's Working Group report, whenever it may be issued. And it's still in the air at the SEC, which is contemplating a 'round two' rulemaking to address any lingering issues in money market funds and Rule 2a-7."
His comments continue, "Proponents of the floating NAV see this idea as a home run -- a way to solve any problems of systemic risk that might somehow arise from money market funds with one swing of the bat. We think it's more of a foul ball. Forcing money market funds to float their NAV will not eliminate the chances of investor runs. Nor will it reduce risks to the financial system in a severe liquidity crisis. What it will do is destroy money market funds as we know them -- imposing severe dislocations on America's households, businesses, and governments, and disrupting the American economy."
Stevens adds, "At ICI, we have been making this case to anyone who will listen, and urging users of money market funds and issuers in the money markets to speak out. And I'm pleased to report that they are responding. In the last several weeks, groups representing state and local governments have come out squarely in opposition to forcing money market funds to float. The National Association of State Treasurers; the Government Finance Officers Association; and the National Association of State Auditors, Comptrollers, and Treasurers -- all have voiced their support for the ability of funds to operate with a stable NAV. The SEC's own Investor Advisory Committee has before it a resolution, strongly backed by one of its subcommittees, that calls upon the Commission to preserve the stable NAV as a core feature of money market funds."
He continues, "And America's businesses are also mobilizing. Just last week, four of the leading organizations in corporate finance joined in a letter to Treasury Secretary Timothy Geithner urging him to reject the notion of abandoning the stable NAV. The letter was signed by the National Association of Corporate Treasurers; the Association for Financial Professionals; Financial Executives International; and the U.S. Chamber of Commerce. They note that floating these funds will drive away investors, and the resulting drain of assets will 'severely impair the ability of companies to raise capital in the U.S. and undermine efforts to strengthen the American economy.' More than 40 companies -- many of them household names -- have signed on to this letter or others urging the President's Working Group to drop the idea of floating NAVs. These organizations and others have emphasized that it is vital to preserve the essential, defining characteristic of money market funds -- because they all recognize the highly important role that these funds play in our markets and our economy."
