BofA's Cabana on Bill H.R.2319
Bank of America Merrill Lynch published "Legislation Overturning Money Fund Reform Rules in the Works." Written by Mark Cabana and Ralph Axel, it says, "This Tuesday the House Financial Services Committee will consider marking up a bill that could overturn key aspects of last year's money market mutual fund reform.... The bill H.R. 2319 would allow any 2a-7 money market mutual fund to elect the option of using amortized cost or the penny rounding accounting method to maintain a stable $1 per share value. Under the bill, stable value funds would also be exempt from default liquidity fee requirements established by through rule 2a-7, though it is unclear if this would also apply to redemption gate provisions for prime and municipal funds instituted last year. Finally, the legislation would explicitly prohibit any federal government bailout of money market mutual funds." The piece explains, "The legislation is unique in that it has considerable bi-partisan support. The House bill was introduced in May and is sponsored by Keith Rothfus, a Pennsylvania Republican; it has 60 co-sponsors, 36 Republicans and 24 Democrats. A similar bill was introduced in the Senate slightly later in May by Pennsylvania Republican Pat Toomey and it has 4 co-sponsors, three of which are Democrats.... Although the bill's sizeable bi-partisan support and markup this week suggest potential for it to move forward, it is far from certain the bill will ultimately become law. Similar legislation with fewer co-sponsors was put forward in 2015 prior to the implementation of the SEC's 2a-7 rules (H.R. 4216, S.1802) but ultimately didn't go anywhere." BofA adds, "Industry support for the current legislation also appears mixed. A small number of large fund complexes have reportedly been pushing for the legislation likely in hopes of retaining larger management fees while corporations and municipalities have advocated for the bill since they could see lower short-term borrowing costs.... However, other fund complexes appear less supportive of the bill due to regulatory exhaustion and are weary of too much change for end investors. Indeed, the Investment Company Institute testified this November that there are "strongly differing member views" on the bill and could not take a position on the proposed legislation as a result.... If the bill passes, we believe it should lead to tighter LIBOR-OIS spreads, a flatter FRA-OIS curve, and narrower front-end swap spreads. Cash should return to prime funds and accelerate the 55% increase in prime institutional assets over the course of this year."
