We finally found the SEC website with "Comments on OFR Study on Asset Management Issues" (thanks to a kind reader!), so today we quote from another major submission, this one from Scott C. Goebel, General Counsel, Fidelity Management and Research Co.. Fidelity, the largest manager of money funds and one of the largest mutual fund managers, writes, "Fidelity Management & Research Company ("Fidelity") appreciates the invitation from the Securities and Exchange Commission ("SEC") to comment on the report entitled "Asset Management and Financial Stability," which the Office of Financial Research ("OFR") published on September 30, 2013 (the "Report"). As we describe in greater detail in this letter, the Report presents an incomplete, inaccurate and misleading view of the asset management industry and, thus, cannot serve as the basis for meaningful policy discussions or regulatory recommendations. In the absence of a far more accurate picture and credible analysis of this diverse industry, the Financial Stability Oversight Council ("FSOC") will be unable to conclude whether threats to financial stability actually arise from asset management, let alone whether any such threats are significant enough to warrant a regulatory response or what the appropriate response might be. We applaud the SEC's invitation to comment, which in our view represents a healthy willingness to engage with the industry on these issues and an acknowledgement that the industry and others have expertise and perspectives that regulators should consider when they make significant policy decisions or, as with the Report, do work that is intended to inform those policy decisions. The SEC's model of engagement and transparency contrasts with the way in which the OFR produced the Report."

They explain, "The FSOC directed the OFR to study the asset management industry to help it consider some fundamental questions. These include: (i) whether any threats to financial stability could arise from asset management; (ii) whether they are significant enough to warrant a regulatory response; and (iii) what form that response should take (i.e., would designation under Section 113 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") ever be appropriate or is asset management better regulated using a different regulatory regime). As we explain in Section I below, the OFR's description of the asset management business is incomplete and inaccurate. It excludes significant market participants and industry segments in its attempt to broadly outline the industry. It also fails to recognize many of the salient characteristics of asset management or to appreciate the policy implications of the distinctions among asset management entities, activities, and markets in which managers invest their clients' funds. Therefore, it fails to advance the discussion of whether threats to financial stability could arise from asset management. The OFR speculates about the existence of such threats without (i) specifying the entities, activities, or markets from which they purportedly arise; (ii) substantiating them with data, measurements, or models; and (iii) considering appropriate policy alternatives to address them. This speculation does not become more compelling through repetition."

The letter continues, "The OFR fails to provide sufficient data or analysis to support any of the speculation included in the Report, which we find striking given that the OFR has described itself as "focused purely on research, data, and analysis." In the Report, the OFR states that "significant data gaps impede effective macroprudential analysis and oversight of asset management firms and activities," a sentiment that is echoed throughout the Report. While it may be the case that the OFR did not have all of the data it would have liked, the OFR acknowledges that a wide spectrum of data is available, particularly with regard to registered funds. It is unclear whether and how the OFR utilized any of the available data in its analysis, as none is mentioned or cited. Regardless, the alleged lack of data did not prevent the OFR from drawing conclusions and purporting to identify risks that may arise from asset management. It does so in many cases without distinguishing between registered and unregistered funds, between activities and products for which data is available and those for which it is not, or between risks that it believes asset management creates and market risks that may impact all participants in a given market."

It tells us, "The OFR confuses its discussion of these issues by conflating entities, markets, and concepts. In some cases, the OFR acknowledges risk mitigating characteristics of industry segments and their regulation but then proceeds to draw conclusions as if these factors have no effect. As we discuss in more detail below, these are only a few of the deficiencies in the Report, but they are representative. We believe these deficiencies are due to several factors that transcend any lack of data. We focus on two in this letter. First, the OFR employed a defective process to produce the Report. We describe this flawed process in Section II and demonstrate that it is characterized by a failure to engage appropriately with subject matter experts and a lack of rigor, transparency and accountability. Second, as we discuss in Section III, a bank-centric perspective pervades much of the regulatory work on "systemic risk." Given the central roles that banks and similar proprietary risk takers played in the 2008 financial crisis, past financial panics and other instability arising from banking, and the importance of banks in the financial system generally, it is understandable that a bank regulatory perspective would inform this work. It should not, however, be the lens through which nonbank industries are viewed. That approach leads to distorted descriptions of nonbank industries and speculative allegations of possible threats to financial stability. The Report suffers from that approach in that it overemphasizes the few similarities to banking that exist in asset management products, activities and entities, and it under-appreciates or ignores the substantial differences, the effectiveness of existing regulation and other risk-mitigating attributes."

Fidelity tells us, "As we have explained to the FSOC and others, certain characteristics of the asset management business and the required regulatory consequences of designation as a systemically important nonbank financial company under Section 113 of the Dodd-Frank Act, which were intended for proprietary risk-takers, make the Section 113 designation authority fundamentally incompatible with asset management entities. Any attempts to designate asset management entities to mitigate a perceived risk would not achieve the desired result; rather, they would likely be destructive and counterproductive. For example, in an industry as competitive as ours with the high degree of substitutability that mutual fund investors enjoy, FSOC designation of a fund out of concern about mass redemptions may itself trigger those redemptions and, in any event, would not prevent investors from seeking the same exposure in an undesignated fund."

They write, "If a threat to U.S. financial stability that warrants a regulatory response were to arise from asset management, a targeted industry-wide solution would be the most effective and efficient response. The SEC's regulatory regimes for registered mutual funds and their advisers are good examples of that approach. The SEC, as the primary regulator for registered mutual funds and their advisers, has used its framework successfully by focusing regulations on specified risks, on an industry-wide basis, for over 70 years. Furthermore, although these regimes were designed to protect investors, and create efficient, robust markets, in doing just that they also addressed many of the topics that preoccupy macroprudential bodies like the FSOC and bank regulators today -- topics like leverage, liquidity, diversification, and transparency."

Finally, Fidelity's Goebel says, "While we continue to believe that asset managers and registered funds do not present threats to financial stability, if the FSOC or any of its member agencies believe the industry bears more consideration, any further steps should be carefully considered, keeping in mind the robust regulatory regime already in place. Further, the SEC is the FSOC member with the most expertise regarding asset management. As such, we believe that the SEC is best suited to advance this policy discussion and set a constructive agenda focused on: (i) identifying and correcting the flaws in the Report; (ii) increasing the general understanding of asset management, its regulation and its role in the financial system; (iii) identifying any data or analysis necessary to accomplish these goals (recognizing that extensive data is already available to regulators on funds, firms and the industry); (iv) playing a leading role in any efforts undertaken to produce that data and analysis; and (v) continuing to engage with industry, the public, and other stakeholders in a transparent manner, as the SEC has done by requesting comments on this Report. We are certainly willing to partner with the SEC in those efforts, just as we were willing to partner with the OFR. Although at times we have different views on particular matters, we are confident that the SEC is the FSOC member with the most knowledge of the asset management industry and should, therefore, design and lead these efforts. We are hopeful, based on the invitation to comment on the Report, that the SEC will continue to drive greater understanding of the asset management business within the OFR and the FSOC."

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