Spivey PWG Comment Letter
Bill Spivey recently posted a comment to the PWG report. Spivey writes, "Thank-you for allowing the public to comment on the report of the President's Working Group on Financial Markets – Money Market Reform Options. As you are aware, the PWG Report proposes certain fundamental changes to the regulation of money market funds to address systemic risk and reduce their susceptibility to runs. My concern is that several of the options in the PWG Report – specifically, options (a) (floating net asset values), (e) (two-tiered system with enhanced protection for stable NAV funds), (f) (two-tiered system with stable NAV funds reserved for retail investors), and (g) (regulating money market funds as special purpose banks) - would fundamentally change the money market industry for the worse, as other commenters have noted in letters to the Commission. Moreover, as other commenters also have noted, it is not clear that other options in the PWG Report – specially, options (c) (mandatory redemptions in kind), (d) (insurance for money market funds) and (h) (enhanced constraints on unregulated money market fund substitutes - would be effective in achieving the goals set out in the PWG Report, especially standing by themselves. For approximately forty years, money market funds have served an invaluable purpose as efficient cash management vehicles, with investors suffering minimal losses. Fundamentally changing the money market fund industry would serve little purpose other than to hurt investors. Moreover, money market funds were in part created to help small investors circumvent outdated banking regulations that had come to benefit only banks. Considering that history, it would be ironic for the Commission to adopt regulations to make money market funds more like banks, as options (d) and (g) would. For those reasons, I would recommend that the Commission not adopt any of those options. As argued by the Investment Company Institute in its January 10, 2011 comment letter to the Commission, the remaining option, that money market funds would have access to some form of private emergency liquidity facility, would not fundamentally change the money market industry, and an ELF would be effective in helping money market funds with significant and unexpected liquidity demands.... [T]he Commission should encourage other forms of ELF and let the market decide."
