Two articles posted late Tuesday brought a rare dose of good cheer to money market mutual fund managers and investors. The Wall Street Journal, in a piece entitled, "House Republicans Seek to Delay Money-Fund Reforms," writes, "House Republicans are seeking to delay a new regulatory plan for the $2.6 trillion money-market mutual-fund industry, signaling in a bill introduced Tuesday they want the Securities and Exchange Commission to study prior changes to its rules before moving forward with any new reforms. Under a provision tucked into a GOP-backed appropriations bill for the fiscal year beginning Oct. 1, the SEC would have to analyze the 2010 reforms designed to improve the resilience of the industry." Also, a Reuters story, "Money funds rates ultra low but "no place to go"," tells us, "The miniscule interest rates being paid by money market mutual funds are making many investors restless, but wealth advisers are urging most to stay the course."
The Journal article explains, "SEC Chairman Mary Schapiro, joined by Federal Reserve and Treasury Department officials, see money-market funds as one of the weakest links in the financial system, despite the 2010 changes that included tighter standards on the kinds of securities funds could hold and a new requirement that funds keep enough cash on hand to meet "reasonably foreseeable redemption requests." Ms. Schapiro has said she is concerned funds remain susceptible to sudden drops in the value of securities they own. She also warns regulators no longer have access to the tools they used to buttress the industry during the financial crisis in 2008."
It adds, "A House Republican aide said the SEC hasn't done the diligence to show the effectiveness of the 2010 reforms or show any additional reforms are needed. An SEC spokesman declined to comment on the proposed study, which the SEC would have 90 days to complete after the passage of the fiscal 2013 budget, assuming the House language becomes law. Though the SEC would not be required to complete the study before it proposes any new money-market-fund reforms, doing so would likely anger its appropriators who set SEC funding levels, regulators and Capitol Hill aides said."
The Reuters piece comments, "Already historically low U.S. short-term interest rates have dipped even lower in recent weeks as investors fleeing financial turmoil in Europe have sought safe havens. But investors have little to fear that rates could turn negative on money market funds, and alternatives like bank savings or checking accounts are no more appealing, advisers said."
They quote Douglas Conoway, managing principal of Wealth Management Group LLC, "Everything that is stable is crummy.... There's no place to go." Reuters adds, "Conoway's firm invests about 5 percent of its $40 million in client assets in money funds, the same level as a year ago."
The story explains, "Low interest rates have already forced fund sponsors to waive billions of dollars in fees to prevent yields from going negative. Fund companies have the resources to keep waiving fees and maintain yields above zero, said Peter Crane, publisher of Cranedata.com, a website that tracks the industry." They quote Crane, "If they haven't gone negative by now, guess what, they're not going negative."
Finally, Reuters also says, "By some measures, the pressures on fund companies are easing despite the safe-haven flood into short-term U.S. government securities. While rates on Treasury bills declined, rates on other investments the funds buy such as repurchase agreements have ticked up. Big fund sponsors like Fidelity, Federated Investors Inc and JPMorgan Chase & Co on average waive 45 percent of fund fees, down from 50 percent several months ago, Crane said."
