We continue our excerpts from recent "Comments on Proposed Rule: Money Market Fund Reform; Amendments to Form PF," today citing a letter from Phillip S. Gillespie, Executive Vice President and General Counsel, State Street Global Advisors. SSgA writes, "State Street Global Advisors ("SSgA") supports the efforts of the Securities and Exchange Commission ("SEC" or "Commission") to strengthen the resiliency and transparency of the money market fund industry. Money market funds are essential participants in the capital markets, providing retail investors and institutions with a flexible cash investment vehicle with a higher yield than many other cash investment alternatives. In addition, money market funds play an important role in providing both capital and liquidity to large and small businesses as well as state and local governments. From a regulatory standpoint, money market funds have proven to be remarkably successful in preserving a stable net asset value ("NAV") for investors while providing liquidity and reasonable investment returns."

They explain, "SSgA welcomes the opportunity to provide comments regarding the Commission's proposals to amend Rule 2a-7 and other rules that regulate money market funds under the Investment Company Act of 1940, as amended (the "1940 Act"). SSgA makes the following observations and recommendations, which are discussed in more detail below: SSgA believes that the SEC is the appropriate regulatory body to regulate money market funds. SSgA has been, and continues to be, opposed to the adoption of a floating net asset value for any money market fund. SSgA opposes the adoption of liquidity restrictions on its clients. However, SSgA concedes that a fees and gates approach is more likely than other proposals to halt a "run" on a money market fund. SSgA strongly opposes any proposal that would combine a floating NAV with a fees and gates approach. SSgA supports the efforts of the SEC to increase transparency and strengthen the resiliency of the money market fund industry, but urges the SEC to consider the substantial administrative, operational and expense burdens of its proposed amendments."

The comment continues, "SSgA encourages the Commission to strictly limit any potential reforms to those which directly address the issues which the Commission is attempting to solve. We further believe that the Commission must evaluate any potential reforms and their purported benefits in light of all of the costs associated with the implementation of such reforms. In addition to the monetary expenses, we believe that the Commission should also carefully consider the administrative and operational burdens, unintended consequences, negative externalities, and even the potential degradation of the attractiveness of the product, as part of its cost-benefit analysis."

It adds, "SSgA supports the efforts of the Commission to retain its regulatory authority over money market funds. SSgA believes that, as registered investment companies, money market funds are appropriately regulated by the SEC. With over forty years of overwhelmingly successful regulation of money market funds, we believe that no other regulatory body has the institutional knowledge and experience necessary to maintain regulatory jurisdiction over this unique investment option."

On the Floating NAV, they tell us, "SSgA has been, and continues to be, opposed to the adoption of a floating net asset value for any money market fund. We have previously set forth our views on the importance of the stable NAV to money market funds, and our opposition to a floating NAV for money market funds, in our 2009 SSgA Comment Letter. We will incorporate by reference those portions of that letter herein, rather than repeat them here, and simply note our continued opposition to the adoption of a mandatory floating net asset value for money market funds. We will, however, reiterate our view that we do not believe that a floating NAV for money market funds will effectively solve for the issues that the Commission is attempting to address. We believe that any regulatory action that the Commission would seek to implement should be narrowly tailored to accomplish a specific objective. If the Commission is seeking to mitigate runs on money market funds, SSgA does not believe that the adoption of a floating NAV would be an effective tool in preventing a run on a money market fund in times of financial stress. Recent history indicates that a floating net asset value was not enough to halt significant runs on European money market funds."

SSgA says, "Even setting aside our philosophical opposition to a floating NAV, there still remain significant practical impediments to the adoption of a floating NAV for money market funds. Substantial and very real tax, accounting and operational issues would arise, and to date have yet to be adequately addressed. While the Commission has indicated that its staff has had discussions with the staff of the Internal Revenue Service and Treasury Department with respect to certain of the tax complications which could result from a floating NAV, there did not appear to be any finality or certainty to those discussions. We believe that absent formal declarations from the tax authorities permitting accommodations relating to the tax complications, a floating NAV for money market funds is not a viable option. We echo this view as it relates to the accounting implications of a floating NAV. An indication that the Commission believes that a floating NAV money market fund would meet the definition of "cash equivalent," while useful, is not likely to be persuasive."

They add, "While we continue to oppose the adoption of a floating NAV for any money market funds, should the SEC ultimately elect to adopt such reforms, SSgA has a number of observations and recommendations: SSgA agrees that the scope of a floating NAV reform should be strictly limited to prime money market funds. We strongly support the continuance of the stable NAV paradigm for all non-prime money market funds, including tax-exempt institutional money market funds. We believe that there is little value, from a market stability perspective, derived from expanding the scope of floating NAV reform beyond prime money market funds."

Finally, SSgA writes, "We agree that the scope should be limited to those holders of prime money market funds who are expected to transact at significantly high asset amounts. However, we believe that the current proposal of $1 million in a single business day as a threshold is not appropriate. In our view, it is doubtful that fund withdrawals at the $1 million level across even multiple investor accounts would be sufficient to result in instability in the money markets given the daily transaction volume in money market instruments. We recommend that the Commission consider a substantially higher threshold for daily transactions to delineate between a floating net asset value money market fund and a stable net asset value money market fund. We believe that $5 million is a more appropriate threshold."

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