SEC Chairman Mary Schapiro participated in a Q&A Friday morning at the Investment Company Institute's General Membership Meeting. Moderator and Conference Chairman Mellody Hobson said, "It's no secret that the SEC and the industry are at loggerheads over the issue of money market mutual funds. We all know where we stand.... How do we solve this?" Schapiro answered, "We do all know where we stand.... There are a lot of people in this room who have come to talk to us, even in the last couple of weeks about these issues, about how do we speak the same languages, broach the differences and find a way forward? I really applaud those funds that have been willing to talk to us about that."
Schapiro continues, "I think I have a very legitimate concern about the risks that are posed by the stable NAV and the potential to cause runs. It's not hypothetical. We all know what happened in 2008, and we all know [about] the Treasury stepping in and creating the Guaranty program.... We also know that the tools to do that are gone. They do not exist any longer. Congress made it clear that they wouldn't make that safety net available."
She told the GMM, "So we want to confront this issue, and we want to have an open dialogue. We want to put some concrete ideas out there for people to react to. We want to [perform a] useful cost-benefit analysis. We want to talk about what happens if we go forward with a capital buffer and what happens if we try to go to a floating NAV. What are the other possibilities that exist to deal with these issues? And have an honest and open debate. Frankly, we're counting on industry to engage constructively in that debate and discussion."
Hobson commented, "Does that mean that there's more room for discussion? And that the lines that have been drawn are not drawn in ink?" Schapiro answered, "Nothing's ever in ink [until it's final]. A lot of you know, I am always open to discussion. Even this week, we were talking with fund firms.... There are always questions in our proposals.... We always ask, 'Is this a better way?' 'Is that a better way?' We [ask] 'Here's the core problem we are trying to solve.... We can't sit by ... and not at least have the discussion and raise the issues."
Hobson then added, "The industry has never dug in like this [against potential changes]. How does this affect your thinking?" Schapiro says, "The ICI and SEC have historically had a really constructive relationship. In some ways you speak for 90 million Americans.... You have a responsibility to speak for those [investors].... You're also businesses. We understand that. We appreciate that there's great passion on this issue.... I notice it. We don't think that doesn't mean we can't confront it, and we have to deal with it."
Schapiro also said, "I think the reforms we did in 2010 were very good and positive.... But we still come in whenever there's a problem and ask, 'What's the impact on money market funds?' I want them to be resilient investment products. They should be what they should be. They should be resilient and they should be strong and investors should know about risks."
In other regulatory news, on Friday a "Statement concerning publication by IOSCO on April 27, 2012 of the "Consultation Report of the IOSCO Standing Committee 5 on Money Market Funds: Money Market Fund Systemic Risk Analysis and Reform Options" from SEC Commissioners Luis Aguilar, Troy Paredes, and Daniel Gallagher was released. It says, "On April 27, 2012, IOSCO published the above captioned Consultation Report without the concurrence of the U.S. Securities and Exchange Commission (the Commission). We feel that it is important to state for the record that the Consultation Report does not reflect the views and input of a majority of the Commission. In fact, a majority of the Commission expressed its unequivocal view that the Commission's representatives should oppose publication of the Consultation Report and that the Commission's representatives should urge IOSCO to withdraw it for further consideration and revision. Accordingly, the Consultation Report cannot be considered to represent the views of the U.S. Securities and Exchange Commission." (See our May 2 Crane Data News, "IOSCO Money Mkt Fund Risk, Reform Report Is Europe's Answer to PWG".)
