Fidelity Investments, the largest manager of money market mutual funds in the U.S. and the world, released a comment letter in response to the SEC's request for feedback on its "Staff Analysis of Data and Academic Literature Related to Money Market Fund Reform." (Comments were due yesterday.) It has yet to be posted on the SEC's webpage, "Comments on Proposed Rule: Money Market Fund Reform; Amendments to Form PF, but we excerpt from the comment below. Fidelity Senior Vice President & General Counsel Scott Goebel writes, "Fidelity Investments ("Fidelity") appreciates the opportunity to provide comments to the Securities and Exchange Commission ("SEC" or "Commission") on the four reports it released on March 24, 2014 (the "Reports") related to its proposed rule "Money Market Fund Reform; Amendments to Form PF" (the "Proposed Rules"). This letter supplements our September 16, 2013 submission in response to the Proposed Rules (the "September 2013 Letter")."
He explains, "We are well positioned to provide feedback and commentary on the Reports because of our experience and expertise in the money market mutual fund ("MMF") industry, as well as our active engagement in MMF reform efforts over the past several years. Our position, as stated in our comment letters, is that the SEC should analyze the costs and benefits of any additional MMF reform. The SEC should narrowly tailor targeted reform to address the SEC's concern about the risk of runs that exists only in the institutional prime segment of the MMF industry. Additionally, the SEC should define retail MMFs based on natural persons and should treat both retail prime and municipal MMFs the same as Treasury and government MMFs -- meaning that the SEC should exclude these types of MMFs from structural changes, including the floating NAV and fees and gates proposals, because none of these MMFs experienced significant outflows during times of market stress."
Fidelity says, "We recognize and value the analytical and empirical approach that the Division of Economic and Risk Analysis ("DERA") took in preparing the Reports. As discussed in greater detail in the remainder of this letter, we highlight some additional information and analysis that is intended to assist the Commission as it considers final rules on MMF reform."
They continue, "We encourage the SEC to consider the following: 1. The data support an exemption from structural reform for government MMFs. The SEC appropriately exempted both Treasury and government MMFs from proposed fundamental structural changes because these MMFs are not susceptible to the risks of mass redemptions during periods of market stress. Both the Safe Asset Supply Study and the Government MMF Study provide further data to support this conclusion."
Fidelity tells us, "2. The SEC should limit any government MMF exemption from structural changes to those government MMFs that hold exclusively government securities. This approach aligns with investors' expectations that government MMFs are composed of only government securities. The Government MMF Study shows that only a few government MMFs make investments in nongovernment securities."
They add, "3. If the SEC proceeds with the liquidity fee and redemption gates alternative for institutional prime MMFs, the SEC should set the redemption fee rate at one percent. Both the Liquidity Cost Study and our analysis comparing DERA's work to the market conditions Fidelity observed during the 2008 financial crisis support this recommendation."
Finally, Fidelity comments, "4. The SEC should not eliminate the "25 percent basket" and, instead, should reduce the 25 percent basket to a 15 percent basket for MMFs. DERA's analysis in the Muni MMF Guarantor Study supports this position and demonstrates that there would be real costs to MMFs if the SEC either eliminates the 25 percent basket or reduces it by too much."
