Another batch of Comments on Proposed Rule: Money Market Fund Reform; Amendments to Form PF were posted on the SEC's website yesterday following a later summer lull. We expect to see the comment letters start coming in fast and furious in coming weeks as we approach the Sept. 17 feedback deadline. Among the most recent batch are one from the Government Finance Officers Association (GFOA) and a number of other Government and municipal organizations, which proposes that the SEC host a roundtable on issues, particularly those involving the floating NAV option. Two other letters from community banks, one from MainSource Bank and one from Woodlands Bank, are also mentioned below.
The GFOA letter, which is also co-signed by the International City/County Management Association, National Association of State Auditors, Comptrollers and Treasurers, National Association of State Treasurers, National League of Cities, National Association of Counties, U.S. Conference of Mayors, American Public Power Association, and Council of Infrastructure Financing Authorities, says, "The undersigned organizations listed above represent state and local governments and public infrastructure development agencies that rely on money market mutual funds ("MMMFs") to meet their investment and short-term financing needs. Our organizations have long supported efforts to strengthen MMMFs while ensuring the preservation of this vehicle for cash management and financing of governments' essential short-term needs."
It explains, "On June 5, 2013, the Securities and Exchange Commission ("Commission") approved proposed rules for MMMF reform ("Proposal"), which include the option of requiring a floating net asset value ("NAV") for institutional prime and tax-exempt funds. We remain concerned about the impact of a floating NAV on our use of MMMFs for cash management and on these funds' ability to provide municipal financing. `Forcing MMMFs to float their NAVs will create significant accounting, operational, and tax problems for investors and issuers. While we appreciate that the Commission acknowledges these problems, the Proposal provides no clear-cut solutions. Accordingly, we believe that it is incumbent upon the Commission to work jointly with other bodies and interested stakeholders to make certain that accounting, tax, and operational implications are fully addressed before the Proposal is finalized."
The GFOA letter continues, "As a next step, we therefore request that the Commission convene a roundtable to discuss the issues that the Proposal -- and particularly the option of requiring floating NAVs -- raises for states and municipal governments, financing authorities, businesses, and others who rely on MMMFs for cash management and short-term financing. Such a roundtable would afford the Commission and accounting and tax authorities an opportunity to collectively address the complicated repercussions of requiring MMMFs to float the NAV. Significant changes to investment policies, processes, and systems -- including in many cases changes to state law will be required to implement this alternative. The Proposal concedes as much, noting that the move to a floating NAV will necessitate complex and potentially costly changes to numerous financial and accounting systems. A roundtable would inform the Commission on the concerns of government finance officials and the extent to which they may stop using MMMFs if unworkable regulations are implemented."
It adds, "A floating NAV requirement for a broad category of MMMFs could also adversely affect states' ability to run local government investment pools ("LGIPs"). Many of these pools model their portfolio management on the risk-limiting provisions of SEC Rule 2a-7 in order to offer a stable $1.00 share price. Changes to Rule 2a-7 that require a broad category of MMMFs to float their share prices could undermine the ability of LGIPs to provide cost-effective cash management for local governmental entities."
Finally, GFOA, et. al., comment, "Given the many questions raised in the Proposal, we believe that convening a roundtable and continuing the dialogue with interested parties will aid the Commission in generating a more informed, effective rule. Such an approach will ensure that any potential regulatory changes aimed at MMMF reform will be consistent with the Commission's statutory responsibility to promote efficiency, competition, and capital formation. We appreciate the opportunity to continue working with the Commission on MMMF reform, and we would welcome the opportunity to discuss the logistical aspects of a roundtable, including prospective participants, in greater detail."
The other letters of note include one from Daniel F. Anderson, CTFA, Senior Vice President, MainSource Bank, which says, "MainSource Bank is a community bank trust department that offers personal trust, investment advisory and custodial services to individuals, foundations, endowments, and public and private pension funds.... For decades we have relied on providing liquidity to these types of individuals or institutions through the use of so-called institutional prime money market mutual funds.... We are aware or the changes set forth by the [SEC] and are writing to you to express our concern as to the effect that the adoption or at least one or the proposals will have on our ability to continue to provide liquidity services lo our customers.... We are particularly concerned about the proposal in the release stating that institutional prime funds would be required to effect purchases and redemptions at net asset values other than $ 1.00 per share."
Finally, Thomas B. Burkholder, Vice President & Trust Officer, Woodlands Bank, writes, "[W]e are concerned that the SEC has a misperception of the challenges presented to community trust departments and their reliance on institutional prime money market mutual funds as predictable, reliable and prudent sources of liquidity. Since there are no readily available alternatives to prime funds, the troubling potential exists where community bank trust departments such as ours might have to return to cash management procedures as they existed before the advent of money market mutual funds -- where community bank trust departments had to acquire, retain and monitor the maturity of individual short-term investments. Such a result would add additional layers of cost that, of necessity, would have to be passed on to clients."
