SEC Chair Mary Jo White testified on "Examining the SEC's Agenda, Operations and FY 2016 Budget Request" before the House Committee on Financial Services yesterday, and briefly mentioned money market funds. She said, "In July 2014, the Commission adopted significant reforms for governing money market mutual funds. The amendments are intended to reduce the risk of runs in money market funds, provide important tools to help further protect investors and the financial system in a crisis, and enhance the transparency and fairness of these products for America's investors. Under the new rules, "institutional prime" money market funds will be required to maintain a floating net asset value based on the current market value of the securities in their portfolios. The rules also provide new tools for boards of directors of money market funds to directly address heightened redemptions in a fund. Specifically, fund boards will be able to impose liquidity fees or to suspend redemptions temporarily, also known as "gates," if a fund's level of weekly liquid assets falls below certain thresholds. The Commission provided for approximately a two-year transition period for these new provisions to enable both funds and investors time to fully adapt their systems, operations, and investing practices. The new rules also enhance money market fund disclosure requirements. Money market funds will be required to promptly disclose certain significant events, including the imposition or removal of fees or gates, portfolio security defaults, and instances of sponsor support. In addition, money market funds will be required to disclose additional key information on their website on a daily basis, including funds' liquidity levels, net shareholder flows, and market-based net asset values per share." Also, Fed Vice Chair Stanley Fischer spoke Monday in New York on the "Monetary Policy Lessons and the Way Ahead," where he commented on the Fed's RRP program. "We also plan to use an overnight reverse repurchase agreement (ON RRP) facility, as needed. In an ON RRP operation, counterparties may invest funds with the Fed at a given rate, possibly subject to a cap on the aggregate amount invested. Because ON RRP counterparties include many money market participants that are not eligible to receive IOER, the facility can be a powerful tool for controlling money market interest rates. Indeed, testing to date by the New York Fed suggests that ON RRP operations have generally established a soft floor for such rates. However, an ON RRP program also has certain risks. For example, a large and persistent program could have unanticipated and adverse effects on the structure of money markets. In addition, in times of stress, demand for the safety and liquidity of ON RRPs with the central bank might increase sharply, potentially exacerbating disruptive flight-to-quality flows. To mitigate these risks, the FOMC has agreed that it will use an ON RRP facility only to the extent necessary and will phase it out when it is no longer needed. In addition, the Fed has been discussing and testing other supplementary tools, such as term reverse repurchase agreements and term deposits, and can use these tools as needed to help support money market rates."
