Stradley Ronon Counsel Joan Ohlbaum Swirsky writes on "SEC Roundtable Discussion Highlights Different Views of Money Market Fund Reform" in the law firm's latest "Fund Alert" for June 2011. She says, "The roundtable (Roundtable) discussion of money market funds that the Securities and Exchange Commission hosted on May 10, 2011 showcased the gulf between some regulators and industry stakeholders regarding proposals for the reform of money market funds. Some participants in the Roundtable noted the importance of money market funds to investors and issuers and their track record of stability. But these views appeared to strike some others as irrelevant to a basic contention: that money market funds may experience a run that could threaten the broader financial system." (Note: Subscribers should watch for Crane Data's June Money Fund Intelligence publication and May 31 month-end data rankings and Crane Indexes later this morning.)
Swirsky explains, "Some Roundtable participants appeared to divide along opposite sides of a key issue: either money market funds are an investment (though a very safe one) and shareholders understand the risk that they can lose money or, alternatively, investors in money market funds perceive those funds as guaranteed and the salient issue is who will (and how to) ensure the implicit protection. It was further suggested that if only a central bank can provide the protection, it is not unreasonable to allow that bank to regulate money market funds. The discussion also highlighted the differing views of various money market fund sponsors and academics regarding the alternatives for reform of money market funds -– but also highlighted the strongly held belief within the industry that money market funds are a regulatory success story that must not be destroyed by unnecessary fundamental regulatory transformation."
She continues, "The SEC and its staff did not support any particular reform option at the Roundtable, but Paul Stevens, President and CEO of the Investment Company Institute, said at the ICI's Money Market Summit on Jan. 16, the week following the Roundtable, that he was 'taken aback' by the reaction of the SEC representatives to the ICI's discussion of its proposed liquidity facility to support money market funds. He characterized the reaction as questioning why the ICI had proposed the idea at all. The Roundtable participants focused more discussion on the capital buffer proposals described below than on the proposed liquidity facility."
The Stradley publication comments, "The SEC convened the Roundtable to discuss, among other things, 'the potential for money market funds to pose a systemic risk to broader financial markets -- what makes money market funds vulnerable to runs' and possible options for further regulatory reform of money market funds, including: floating the net asset value, imposing bank regulation, creating a private liquidity facility, and mandating reserve or capital requirements. The Roundtable grew out of the Report dated Oct. 21, 2010, of the President's Working Group on Financial Markets (PWG; the PWG Report) on proposals for reform of money market funds. The SEC sought public comment on the PWG Report and said the SEC would meet with various stakeholders, interested persons, experts and regulators to discuss the options in the Report."
Swirsky says, "The Roundtable included, among others, six of the 10 voting members (or their representatives) of the Financial Stability Oversight Council. The FSOC is a council of regulators established to oversee systemic risk by the Dodd-Frank Act, which was signed into law by President Obama on July 21, 2010. The Dodd-Frank Act grants the FSOC authority to influence the regulatory regime for money market funds and other significant financial institutions in various ways." To read the full article, visit http://www.stradley.com.
