SEC's Mary Jo White on MMFs
Earlier this week, U.S. Securities and Exchange Commission Chair Mary Jo White gave "Testimony on "Mitigating Systemic Risk in the Financial Markets through Wall Street Reforms" to the U.S. Senate Committee on Banking, Housing, and Urban Affairs. She said on Money Market Funds, "While there are many possible explanations for the redemptions from money market funds during the 2007-2008 financial crisis, regardless of the cause or causes, money market funds' experience in the 2007-2008 financial crisis demonstrates the harm that can result from rapid heavy redemptions in money market funds. Since that time, the Commission and its staff have reexamined the Commission's regulation of money market funds. This effort began with the Commission's 2010 reforms to money market fund regulation, followed by a 2011 Commission roundtable on money market funds and systemic risk, a new and detailed study in 2012 by SEC economists, and most recently a June 2013 proposal requesting public comment on additional reforms to the Commission's regulation of money market funds. The staff also has used data collected from money market funds on Form N-MFP to monitor trends and risks in this area, which was particularly useful during the Eurozone sovereign debt crisis. The Commission's recent proposal requests comment on a variety of reforms designed to reduce money market funds' susceptibility to heavy redemptions, to mitigate potential contagion effects from heavy redemptions, and to increase the transparency of their risks, while preserving the benefits of this product to both retail and institutional investors to the extent possible. There are two principal reform proposals -- which could be adopted separately or in combination. The first -- would require that all prime institutional money market funds operate with a floating net asset value. The second would require that all non-government money market funds impose a 2% liquidity fee if the fund's level of weekly liquid assets fell below 15% of its total assets, unless the fund's board determined that it was not in the best interest of the fund. The second reform alternative also would permit the fund's board of directors to temporarily suspend redemptions in the fund for up to 30 days if it crossed that liquidity threshold. With respect to both alternatives, the proposed reforms also would tighten diversification requirements, enhance disclosure requirements, improve data reporting on both registered and unregistered money market funds, and strengthen fund stress testing. We look forward to receiving public input on the proposal and whether it strikes the right balance between addressing systemic risk concerns while also maintaining money market funds as a viable investment product. The 90-day comment period ends in mid-September." See also, ICI's "Money Market Mutual Fund Assets".
