This morning, new SEC Chair Mary Jo White speaks at the Investment Company Institute annual "General Membership Meeting," the largest gathering of mutual fund professionals in the world. Her talk, entitled, "Regulation in a Global Financial System," touched on a number of issues and she only spent a few paragraphs on money market mutual funds. But White seems to imply that it will be a much kinder, gentler SEC, using terms like "preserve the economic benefits of the product," "appropriate and balanced proposal," and "investor-oriented result." (We excerpt all her money fund comments below, but the full speech may be accessed here.) Today's Wall Street Journal (page C1) also addresses potential reforms with the article, "SEC Zeroing In on 'Prime' Funds". (Note too our "Link of the Day" where Charles Schwab's Marie Chandoha discusses money fund waivers with CNBC from the ICI GMM.)
SEC Chair White says on "Money Market Fund Regulation," "While the U.S. has been the focus of much of the policy debate surrounding money market funds, these funds are global investors and are an area of focus for international regulators as well. As regulation moves forward on a several parallel paths, I am hopeful that we can build upon the SEC's past coordination with global regulators to develop approaches that are consistent, workable, and effective."
She explains, "As the SEC works to develop and propose meaningful money market fund reform, our goal is to preserve the economic benefits of the product while addressing potential redemption pressures and the susceptibility of these funds to runs -- runs in which retail investors are especially likely to suffer losses."
White adds, "While I'm sure that you would like me to say more about this today, I'll stop there as the staff and Commissioners are actively engaged in discussions designed to yield an appropriate and balanced proposal in the near future.
She tells the ICI GMM, "I am confident that the ultimate result of this process will take into account the views of Commissioners who vary in background and perspective, but share the goals of protecting investors and promoting market efficiency and capital formation. The SEC regulatory process is grounded in sound economic analysis and is well-informed by public comment, including helpful comments from the ICI fund investors and others with important and relevant perspectives on money market funds."
Finally, White adds, "This is the process the SEC will bring to bear as it considers proposing money market fund reform. And I hope that ultimately it will lead to a good, investor-oriented result that has been informed by and can be shared with other regulators in the global marketplace."
Today's Journal writes, "U.S. securities regulators, under pressure to address risks posed by the $2.6 trillion money-market-mutual fund industry, are considering a scaled-back approach that would tighten rules for about half of the sector that is seen as most vulnerable to investor runs, according to people familiar with staff discussions. The approach, one of several being contemplated at the Securities and Exchange Commission, would require only the riskiest funds to abandon their fixed $1 share price and allow shares to float in value like other mutual funds, these people said."
The piece, which features our data on market share of Prime vs. Nonprime MMF assets, adds, "The SEC may require only "prime" money funds, which invest in short-term corporate debt, to make the switch. Those funds, which comprise about 54% of the industry, according to Crane Data LLC, are seen as most vulnerable because they were the source of investor runs during the height of the 2008 financial crisis.... One concern is whether identifying certain funds as more vulnerable to runs could create a self-fulfilling prophecy, with jittery investors fleeing at the first signs of market stress. But supporters argue that switching to a floating share price would make prime funds less susceptible because investors would know the current share price and wouldn't race to sell in anticipation that it could fall below $1."
The only other mention of money funds we've seen at the ICI's GMM was from Chairman Gregory Johnson, President and CEO of Franklin Resources. He spoke Wednesday on "Facing a Changing World," and said, "International expansion has brought another trend -- increased global regulation.... These trends pose a significant challenge for global funds -- as, for example, U.S. and European regulators both focus on money market funds with proposals that could severely undermine the value of these funds to their investors.... Working with its members, ICI Global is pursuing an active policy agenda. It's involved in debates over the role of funds in financial stability, covering such issues as money market fund regulation and securities lending.... On trading and market structure, ICI Global has emerged as the first group to provide an organized global voice for the buy-side."
Finally, in other news, ICI reported its latest weekly "Money Market Mutual Fund Assets" late yesterday. The release says, "Total money market mutual fund assets decreased by $30.24 billion to $2.563 trillion for the week ended Wednesday, May 1, the Investment Company Institute reported today. Taxable government funds decreased by $14.41 billion, taxable non-government funds decreased by $13.67 billion, and tax-exempt funds decreased by $2.17 billion."
