We learned from Wells Capital Management that the U.S. House of Representatives' "Financial Services and General Government Appropriations Bill, 2015" contains language that may further delay the SEC's Money Market Fund Reform efforts and to possibly remove the floating NAV option from consideration. The House Draft Committe Report says (on page 50) about "Money Market Funds. -- The Committee remains concerned with the Commission's proposal to further regulate money market funds. The Committee expects that the final rules will take into account the substantive concerns of stakeholders who use these products for short term financing needs. Impairing or restricting the use of money market funds could potentially result in a decrease in the ability of these products to provide liquidity, potentially resulting in hundreds of market participants issuing longer-term debt, significantly increasing their funding costs, slowing expansion rates, and depressing job and economic growth."
It adds, "The Committee believes before the final rules are promulgated with respect to money market funds, rigorous economic analysis should be conducted, including a thorough review of all submitted comments. Specifically, the final rules should carefully consider how any proposed changes would affect: (1) investor returns and cash management efficiencies; (2) the borrowing costs for businesses and governments that access money markets for financing purposes; (3) the concentration and capacity among providers of short-term financing; (4) efficiency, competition, tax consequences, and capital formation; and (5) the effectiveness of floating the NAV as a tool to prevent run risk."
The report says, "The Committee on Appropriations submits the following report in explanation of the accompanying bill making appropriations for financial services and general government for the fiscal year ending September 30, 2015.... The Committee recommends an appropriation of $1,400,000,000 for the SEC for fiscal year 2015. The Committee designates not less than $9,239,000 for Office of Inspector General and $68,872,000 for the Division of Economic and Risk Analysis."
In other news, recent "Minutes of the Financial Stability Oversight Council (from May 7, 2014)" contains some discussions of money market funds. The minutes commented about Federal Reserve Chair Janet Yellen, "She described a number of additional steps the Federal Reserve plans to take to further reduce risks to financial stability. She noted that other challenges remain, including the need for money market mutual fund reform, risks in the tri-party repo market, and incentives for large financial institutions to reach for yield in the current low interest rate environment. She closed by saying that the Council must continue its collective efforts to monitor risks, address vulnerabilities, and build a safer financial system."
The minutes added, "Mary Jo White, Chair of the SEC, spoke next. She stated that the report represents hard and collaborative work, and thanked her fellow Council members and staff for developing the report. She noted that cybersecurity is a critical global issue for long-term security, and an area where a multi-regulatory body like the Council can play a constructive coordinating function. She also observed that the report discusses money market funds and reiterates that the SEC is best positioned to implement reforms in this area. She further noted that the report also describes the SEC's 2013 proposal to reform the structure of money market funds, which included two alternative reforms of a floating net asset value for prime institutional funds and fees and gates to address redemption risks in times of stress. She noted that, as proposed, these reforms could be enacted individually or in combination. She stated that the SEC and the staff are actively engaged and look forward to adopting effective and meaningful reforms to address money market funds' risks."
Finally, the minutes commented later, "The Chairperson then asked Joao Santos, Vice President and Function Head at the Federal Reserve Bank of New York, and Trent Reasons, Senior Policy Advisor at Treasury, to present on some of the key elements of the annual report. Mr. Santos and Mr. Reasons provided a summary of the annual report. They also outlined the nine themes of the annual report: (1) the vulnerability to runs in wholesale funding markets, including tri-party repo and money market mutual funds, that can lead to destabilizing fire sales."
