Negative reaction continues over the release of the Financial Stability Oversight Council's "Proposed Recommendations Regarding Money Market Mutual Fund Reform". We mentioned the ICI's response in yesterday's "Link of the Day," but the Chamber of Commerce also released a statement. Entitled, "U.S. Chamber Warns Against Flawed FSOC Process, Recommendations on Money Market Regulation," and subtitled, "'FSOC should allow SEC to consider other approaches that would strengthen rather than severely weaken money market mutual funds' Hirschmann Says." The Chamber explain, "David Hirschmann, president and chief executive officer of the U.S. Chamber's Center for Capital Markets Competitiveness, today issued the following statement on the release from the Financial Stability Oversight Council (FSOC) of draft recommendations to the Securities and Exchange Commission (SEC) to advance additional reforms to money market mutual funds."
He says, "The FSOC is repeating the SEC's same flawed process by outlining proposals that would tear down a vital source of financing for American companies, cities and states. Once again, regulators have put the cart before the horse -- proposing solutions without clearly defining the specific problems they are addressing, without studying the impact of sweeping reforms already adopted by the SEC in 2010, and without examining the impact of their proposals on corporate, state and municipal funding. Regulators have repeatedly indicated they agree that money market funds are an essential source of financing for companies, cities, and states, and yet they have focused all their attention on a narrow group of proposals that would fundamentally make the product unusable."
Hirschmann continues, "Instead of acting now and simply re-hashing the same proposals that were not supported by a bipartisan majority of the SEC, members of the FSOC should have allowed the SEC to consider other approaches that would strengthen rather than severely weaken money market mutual funds. Failure to consider and study options that would strengthen rather than destroy the product is regulatory malpractice. This action reinforces to investors and issuers that regulators simply want to fundamentally alter the structure and use of money market mutual funds until they are no longer a viable investment tool. What they should be doing is preserving the utility and strengthening the resiliency of this product that is a vital means of cash management for millions of investors -- including retirees, universities, state and local governments, and businesses -- and borrowers."
He adds, "We are deeply disappointed that the FSOC chose to ignore very serious, legal procedural issues raised in recent letters and proceed prematurely with recommendations. The FSOC interjecting itself in an investment security issue that is clearly under the SEC's jurisdiction sets a troubling precedent for any independent agency. All five SEC Commissioners have indicated that they are willing to consider additional regulations."
Finally, Hirschmann says, "With legislatively mandated rules grossly behind schedule and unprecedented fiscal cliff negotiations and uncertainty pressing, it seems the FSOC members have taken their eye off the ball by focusing on unnecessary, additional regulations on a vital, transparent and resilient investment product."
In other news, the SEC has once again begun posting Comment Letters to the President's Working Group Report on Money Market Fund Reform (Request for Comment) after a 2-month hiatus. Among the serious new additions are Scott Goebel of Fidelity Investments' letter to the European Commission on UCITS and money funds and John Hawke of Arnold Porter on the adverse consequences of a floating NAV.
Fidelity writes, "Enclosed is a copy of comments that Fidelity Investments submitted to the European Commission on its consultation document on Undertakings for Collective Investment in Transferable Securities; Product Rules, Liquidity Management, Depositary, Money Market Funds, Long-term Investments. The Consultation Document sought comment on a variety of topics, including possible reforms to money market funds, much like the President's Working Group Report on Money Market Fund Reform, but on a global level. As we have outlined in the attached letter, U.S. money market mutual funds currently are subject to a comprehensive regulatory framework and to oversight by the Commission. We believe that the Commission's robust regulation and oversight of money funds has been very successful and the Commission's 2010 amendments to its rules governing money funds have made them even more liquid, transparent and stable than ever before."
He adds, "We believe that some minimum international standard must exist for consistent treatment and management of money market funds under a global regulatory framework. However, we realize that money market fund regulation has developed in different markets based on differences in relative size and maturity of national economies. It is important for regulators to recognize these differences within their jurisdictions, which may necessitate varying regulation. Accordingly, our recommendation to the EC and other regulators globally is to consider certain key features and principles that offer the greatest protections to investors while enabling money market funds to play an important role in the capital markets. These practices include constraints on the liquidity, maturity, diversification, and credit quality of money market funds, as well as transparency and clear governance requirements, all of which have proven effective in increasing the resilience of money market mutual funds in the U.S."
Hawke's letter says, "Attached is an analysis of the potential adverse economic consequences of proposals to require money market mutual funds to "float" their net asset values (NAVs). This analysis is derived principally from letters, surveys, reports and other data submitted to the Commission through its comment file on the President's Working Group Report on Money Market Mutual Fund Reform Options and its comment file on the 2010 amendments to Rule 2a-7."
