On Capitol Hill yesterday, SEC Chair Mary Jo White told lawmakers that the SEC was seeking 12 new positions in its Division of Investment Management to, among other things, monitor money market funds' compliance with the new requirements. White was providing "Testimony on the Fiscal Year 2016 Budget Request of the U.S. Securities and Exchange Commission" to the House Subcommittee on Financial Services and General Government Committee on Appropriations. It's one of several news briefs we're following today. We also report on a speech delivered yesterday by the Office of Financial Research's Richard Berner at the SIFMA Ops Conference, where he talks about a new repo data gathering initiative. In addition, we report on SEC Commissioner Daniel Gallagher's recent speech, as well as commentary from the Investment Company Institute regarding a recent study by the International Monetary Fund.
White told the Congressional subcommittee, "[T]he SEC is seeking 12 new positions for its Division of Investment Management to operationalize new rulemaking requirements, offer enhanced guidance to registrants, expand the disclosure review program's ongoing analysis of industry trends, and provide additional oversight of private fund advisers. The new positions would also monitor money market funds' compliance with the new requirements adopted in FY 2014 by the Commission, as well as assist in adopting -- and ultimately operationalizing -- the package of measures for enhancing the asset management industry's risk monitoring and regulatory safeguards."
She also discussed significant achievements over the past year, including money fund reforms. "The Commission completed reforms designed to enhance the structure and operation of the $3.7 trillion money market fund market to enhance the protection of investors and to support financial stability."
At the Securities Industry and Financial Management Association Ops Conference on Tuesday in San Diego, OFR Director Richard Berner talked about a new initiative. He said, "Through bilateral data-sharing agreements among FSOC member agencies, all participants can be assured that shared data will be protected, secured, and treated consistently. We are already sharing data under such agreements. Examples include our access to the Securities and Exchange Commission's detailed data about hedge funds and other private funds in Form PF, and their detailed money market fund data in Form N-MFP."
Berner continued, "To form a complete picture of the financial system, we must also fill gaps by collecting new data from firms and markets. Our partnership with the Federal Reserve to fill gaps in data describing repurchase agreements, or repo, is a good example of such initiatives. In October, we announced a pilot project to understand how to fill these gaps, and today, we are well underway.... Repos are an important source of short-term funding for the financial system. The U.S. repo market provides an estimated $3.8 trillion in funding daily. However, the repo market can also contribute to risks to financial stability. The repo market is comprised of two parts: the triparty repo market, in which transactions are centrally settled by two large clearing banks, and the bilateral market, where repo transactions are cleared and settled privately between two firms.... Information and data on the triparty market are published regularly, but information about bilateral repos is scant."
Berner added, "The project is designed to fill the gaps in bilateral repo data, and it marks the first time the OFR is going directly to industry to collect financial market information. Participation in the pilot project is voluntary, and participating companies have provided input on what data should be gathered and what templates should be used for data collection. This pilot is intended to inform future collection efforts, which we hope to initiate quickly. Aggregated data from the pilot will be published to provide greater transparency into the bilateral repo market for participants and policymakers. This repo pilot project is one example of how the OFR looks across the financial system to fill gaps in analysis and financial data. We have also begun a related initiative -- a first cousin to the repo project -- to fill gaps in securities lending data. Working with the Fed and the SEC, we are reaching out to lenders and borrowers to understand where the gaps are."
White's colleague, SEC Commissioner Daniel Gallagher, discussed "Bank Regulators at the Gates: The Misguided Quest for Prudential Regulation of Asset Managers" at the Virginia Law and Business Review Symposium on April 10. Gallagher talked about misguided efforts by FSOC to regulate asset managers, citing initial efforts to regulate money market funds, saying, "In November 2012, the members of FSOC voted unanimously to approve a proposal that, if adopted, would allow FSOC to issue a formal "recommendation" on money fund regulation to the SEC.... Fortunately, FSOC's proposal never advanced to the adoption stage, but FSOC had proven its willingness to cross the Rubicon of imposing its will on an ostensibly independent regulator if its threats were not heeded."
He continued, "Possibly fueled by money market fund adrenaline, in 2013 FSOC commenced a review to determine whether certain asset management firms should be designated as systemically important financial institutions, or "SIFIs," and therefore be subject to enhanced prudential standards and supervision." He also commented on how FSOC has typically followed FSB recommendations. "For example, in November 2012, the FSB endorsed a recommendation to subject money market mutual funds to capital requirements unless they adopted a floating net asset value. The very next day, the FSOC issued a public report in which it pressured the SEC to adopt either floating NAV or capital buffer rules."
Also, ICI's Sean Collins, senior director, and Chris Plantier, senior economist for industry and financial analysis, posted commentary on a report released by the IMF last week on Global Financial Stability. In their commentary, entitled "The IMF Is Entitled to Its Opinion, But Not to Its Own Facts," Collins and Plantier take issue with some of the "facts" in the report. They write, "On Wednesday, the International Monetary Fund (IMF) released its latest Global Financial Stability Report (GFSR), including a chapter on the asset management industry and financial stability. The IMF argues that regulated funds domiciled in developed countries may amplify shocks to emerging markets, thus destabilizing those markets.... As the late senator Daniel Patrick Moynihan said, "You are entitled to your opinion. But you are not entitled to your own facts." In reality, the IMF's figures overstate by a wide margin both the level and growth in the emerging market bonds held by regulated funds domiciled outside of emerging market economies. And the overall message of risk posed by emerging market funds is also inflated."
Finally, the New York Fed's Liberty Street Economics blog had a post called "The FR 2420 Data Collection: A New Base for the Fed Funds Rate." It says, "On April 1, 2014, the Federal Reserve began collecting transaction-level data on federal funds, Eurodollars, and certificates of deposits from a large set of domestic banks and agencies of foreign banks operating in the United States. Previously, the Fed had only received fed funds and Eurodollar data from major brokers, and not directly from the banks borrowing in these markets. These new data, collected on form FR 2420, have helped the Fed better understand activity in the fed funds and Eurodollar markets. In this post, we focus on the new data on fed funds, in light of the Federal Reserve Bank of New York's Trading Desk announcement that it plans to use these data to calculate and publish the fed funds effective rate."
