ICI writes "Is SEC Data Misleading the Public on Sponsor Support of Money Market Funds?" Economist Sean Collins writes, "In her testimony at a hearing today before the Senate Banking Committee, Securities and Exchange Commission (SEC) Chairman Schapiro made this statement. "Based on an SEC staff review, sponsors have voluntarily provided support to money market funds on more than 300 occasions since they were first offered in the 1970s." The SEC has not released its analysis, so we do not know precise dates or what exactly is being measured or counted. Nevertheless, we believe the estimate of 300 occasions is highly misleading.... An August 9, 2010, report by Moody's Investors Service identified 181 cases in which U.S. funds had received "support" from their sponsors over the period from 1980 to August 2009. The bulk of these 181 instances (137 or 66 percent) occurred before the year 2000. Indeed, 60 percent of these events (108) occurred in 1994 or before. In other words, they took place either before the SEC significantly tightened the risk-limiting provisions of Rule 2a-7 in 1991 for taxable funds, or before it tightened the application of Rule 2a-7 to tax-exempt funds in 1996 and 1997. These facts serve to highlight a key question. Why, as Chairman Schapiro's testimony suggests, did the SEC staff start its count of instances of fund sponsor support in 1971? ... Whatever the correct figure for the crisis period, it is important to understand why money market fund sponsors occasionally provide support and what constitutes "support." The fact that a fund sponsor provides support does not necessarily mean that the fund is in danger of breaking the dollar. Sponsors may provide support for a number of reasons, including avoiding headline risk of a particular security or securities, to maintain a AAA credit rating for a money market fund, or to respond to investors' concerns regarding their degree of comfort with particular securities.... Until the SEC provides the data backing its analysis, we won't know how many of these conditional support agreements ultimately required sponsors to actually provide support. To the extent that support did materialize, we do not know from SEC statements whether it was significant or de minimis. Finally, we do not know whether any support that materialized actually led to losses among sponsors, or whether the securities that sponsors may have supported simply matured at par without loss."
