Earlier this week, we briefly mentioned the introduction of "H.R.2319 - Consumer Financial Choice and Capital Markets Protection Act of 2017 (see our May 22 News), a bill that could roll back the floating NAV portion of money fund reforms. We finally located the text of the latest bill (with help from a reader), and excerpt from it below. While the bill's odds of passing are unclear, it appears that it would substantially roll back the 2016 money fund reforms by allowing floating NAV money market funds an option to return to amortized cost accounting, the foundation of the "stable" NAV. We'll be watching developments closely in coming months. (See also our March 8, 2016 News, "Long Shot Legislation Could Keep All Money Funds Stable, Ban Bailouts.")
The new House bill, introduced to the 115th Congress by Rep. Keith Rothfus [R-PA] on May 3 to the House and its Financial Services committee, is co-sponsored by Rep. Gwen Moore [D-WI], Rep. Steve Stivers [R-OH], Rep. Terri Sewell [D-AL], Rep. David Trott [R-MI], Rep. Albio Sires [D-NJ], and Rep. Luke Messer [R-IN]. H.R.2319 is meant, "To protect the investment choices of investors in the United States, and for other purposes."
The text states, "Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled.... This Act may be cited as the "Consumer Financial Choice and Capital Markets Protection Act of 2017"." Section 2 says of the "Treatment of money market funds under the Investment Company Act of 1940. The Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.) is amended by adding at the end the following: SEC. 66. Money market funds."
It continues, "(a) Definitions. In this section (1) the term 'covered Federal assistance' means Federal assistance used for the purpose of (A) making any loan to, or purchasing any stock, equity interest, or debt obligation of, any money market fund; (B) guaranteeing any loan or debt issuance of any money market fund; or (C) entering into any assistance arrangement (including tax breaks), loss sharing, or profit sharing with any money market fund; and (2) the term 'Federal assistance' means (A) insurance or guarantees by the Federal Deposit Insurance Corporation; (B) transactions involving the Secretary of the Treasury; or (C) the use of any advances from any Federal Reserve credit facility or discount window that is not part of a program or facility with broad-based eligibility established in unusual or exigent circumstances."
The next section explains, "(b) Election To be a stable value money market fund. (1) IN GENERAL. Notwithstanding any other provision of this title, any open-end investment company (or a separate series thereof) that is a money market fund that relies on section 270.2a–7 of title 17, Code of Federal Regulations, may, in the prospectus included in its registration statement filed under section 8 state that the company or series has elected to compute the current price per share, for purposes of distribution or redemption and repurchase, of any redeemable security issued by the company or series by using the amortized cost method of valuation, or the penny-rounding method of pricing, regardless of whether its shareholders are limited to natural persons."
This is conditional, "[I]f (A) the company or series has as its objective the generation of income and preservation of capital through investment in short-term, high-quality debt securities; (B) the board of directors of the company or series elects, on behalf of the company or series, to maintain a stable net asset value per share or stable price per share, by using the amortized cost valuation method, as defined in section 270.2a–7(a) of title 17, Code of Federal Regulations (or successor regulation), or the penny-rounding pricing method, as defined in section 270.2a–7(a) of title 17, Code of Federal Regulations (or successor regulation)."
It also requires, "[T]he board of directors of the company has determined, in good faith, that (i) it is in the best interests of the company or series, and its shareholders, to do so; and (ii) the money market fund will continue to use such method or methods only as long as the board of directors believes that the resulting share price fairly reflects the market-based net asset value per share of the company or series; and (C) the company or series will comply with such quality, maturity, diversification, liquidity, and other requirements, including related procedural and recordkeeping requirements, as the Commission, by rule or regulation or order, may prescribe or has prescribed as necessary or appropriate in the public interest or for the protection of investors to the extent that such requirements and provisions are not inconsistent with this section."
The bill adds an "(2) EXEMPTION FROM DEFAULT LIQUIDITY FEE REQUIREMENTS. Notwithstanding section 270.2a–7 of title 17, Code of Federal Regulations (or successor regulation), no company or series that makes the election under paragraph (1) shall be subject to the default liquidity fee requirements of section 270.2a–7(c)(2)(ii) of title 17, Code of Federal Regulations (or successor regulation)."
The text includes a "(c) Prohibition against Federal Government bailouts of money market funds. Notwithstanding any other provision of law (including regulations), covered Federal assistance may not be provided directly to any money market fund. (d) Disclosure of the prohibition against Federal Government bailouts of money market funds. (1) IN GENERAL. No principal underwriter of a redeemable security issued by a money market fund nor any dealer shall offer or sell any such security to any person unless the prospectus of the money market fund and any advertising or sales literature for such fund prominently discloses the prohibition against direct covered Federal assistance as described in subsection (c)."
The bill adds, "(2) RULES, REGULATIONS, AND ORDERS. The Commission may, after consultation with and taking into account the views of the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Department of the Treasury, adopt rules and regulations and issue orders consistent with the protection of investors, prescribing the manner in which the disclosure under this subsection shall be provided."
Finally, it includes a "(e) Continuing obligation To meet requirements of this title. A company or series that makes an election under subsection (b)(1) shall remain subject to the provisions of this title and the rules and regulations of the Commission thereunder that would otherwise apply if those provisions do not conflict with the provisions of this section."
The Senate version of the bill, S.1117, the "Consumer Financial Choice and Capital Markets Protection Act of 2017," was introduced May 11, 2017, to the Senate Committee on Banking, Housing, and Urban Affairs and is sponsored by Sen. Pat Toomey [R-PA]. It is co-sponsored Sen. Joe Manchin III [D-WV], Sen. Mike Rounds [R-SD], and Sen. Robert Menendez <p:>`_ [D-NJ].
