The SEC recently posted a Comment Letter on the President's Working Group Report on Money Market Fund Reform. The letter the first since August 12, is from Washington State Treasurer James Mcintire. Mcintire writes, "In the aftermath of the tumultuous market events of 2008, the Securities and Exchange Commission (SEC) made important revisions to Rule 2a-7 to strengthen the regulatory framework, increase transparency for investors, tighten restrictions on weighted average maturity and credit quality, and to introduce a weighted average life restriction and liquidity guidelines. These positive revisions bolstered the safety of critical elements of the cash management and short-term investing for corporations, individuals, fund managers and governmental entities. A key component of the value of 2a-7 funds for cash managers in the public and private sector is their ability to safely operate using a stable net asset value (NAV) -- and I applaud your recent changes to Rule 2a-7 that strengthen this ability. However, I am concerned that some proposals you have put forth are unnecessary, go too far, and threaten the existence of a critical investment option for cash managers specifically, recommendations to force 2a-7 funds to operate on a floating NAV basis. Over 40 states operate local government investment pools (LGIP) and a vast majority of those pools, including the State of Washington's LGIP, are operated in a 2a-7-like manner. There are two primary reasons for operating in conformity with Rule 2a-7, even though we are not subject to SEC regulation. First and foremost is that Rule 2a-7 provides a solid investment framework with which to safely operate an LGIP that offers 100% liquidity to participants on a daily basis and does so with a stable NAV. Secondly, is that if an LGIP operates outside Rule 2a-7, the Governmental Accounting Standards Board (GASB) dictates that it must report to each participant their share of any unrealized gains or losses and that participants must report these gains or losses on their balance sheets. This is not an acceptable option for most governmental entities -- nor is operating on a variable NAV basis.... If our $10 billion LGIP fund is forced to operate on a variable NAV basis, many of these local governments will end up once again chasing yields amongst community banks or be forced to park their money in noninterest-bearing accounts. This would truly do a disservice to many struggling local governments by leaving them without access to safely managed investment resources."
