Fidelity: Preserve and Protect MMFs
Today, we quote from Fidelity's response letter to the SEC's "Request for Comment on Potential Money Market Fund Reform Measures in President's Working Group Report." Cynthia Lo Bessette writes, "Fidelity Investments appreciates the opportunity to provide comments to the Securities and Exchange Commission on potential reform measures for money market funds, as noted in the report entitled Overview of Recent Events and Potential Reform Options for Money Market Funds issued by the President's Working Group on Financial Markets in December 2020. Fidelity was encouraged by the PWG's efforts to analyze the events of March 2020 as a means of informing potential modifications to the regulation and structure of money market funds. A thorough understanding of these events is an essential element in designing regulatory measures if those measures are to achieve the Report's three stated goals of addressing structural vulnerabilities that contributed to stress in the short-term funding markets, improving the resilience of short-term funding markets and reducing the likelihood of government intervention in the future. In addition, a thorough understanding of the events of March 2020 also requires an analysis of the similarities and differences between those events and the events of the financial crisis in 2008 as well as an understanding of how the SEC's prior amendments to Rule 2a-7 impacted money market funds and their investors in 2020. Adopting reform measures without a full appreciation of these matters would be ill-conceived and could significantly harm the short-term funding markets, which in turn, would negatively impact the financial system more broadly." The letter explains, "Fidelity has long served as a leading provider of money market funds and has extensive experience managing funds in both normal and stressed market conditions. Fidelity first began managing and offering money market funds in 1974.... Fidelity remains the largest provider of money market funds with approximately $897 billion in assets under management as of April 1, 2021, representing approximately 18 percent of the U.S. money market fund industry. Fidelity liquidated its two publicly offered institutional prime funds in August 2020 in response to our experience with rapid, significant investor redemptions from these funds during periods of market stress, as well as evolving institutional investor preferences (as evidenced by the decline in institutional prime fund assets since 2016). We believe we can better meet institutional investor needs with other products and we continue to offer a broad array of money market funds across all other categories." Fidelity tells us, "Based on our history of managing and distributing a broad array of money market funds held by millions of fund investors, we believe we are uniquely qualified to provide insights into the events of March 2020 and to offer views on the various reform measures described in the PWG Report. While we view the PWG Report as a productive first step in considering potential reform measures, we encourage the SEC to now narrow the range of options under consideration by eliminating those options that have no nexus to the events of 2020 and therefore would not achieve any of the goals for reform stated in the PWG Report. The details of any measures that the SEC wishes to pursue further remain to be considered and, as such, we anticipate having more viewpoints to offer once more of these details are made public." The "Executive Summary" explains, "In the remainder of our letter, Fidelity discusses the following matters in detail, which we believe the SEC should consider in undertaking any further reform of the money market fund industry. They tell the SEC: "Any Reforms Must Preserve and Protect the Availability of Money Market Funds. Money market funds provide significant benefits to investors, the short-term funding markets and the broader economy. The ongoing dialog regarding potential reform measures must account for these benefits as well as the significant changes to the industry and to the regulation of money market funds by the SEC through its prior 2010 and 2014 reforms. Furthermore, government funds, which now represent a significant majority of the industry, should be excluded entirely from further rounds of reform in light of their proven track record as a stable, attractive investment in calm financial markets and as a safe haven in times of market uncertainty.... Any Reforms Must Be Narrowly Tailored to Address Liquidity Pressures in Institutional Prime Funds." Fidelity summarizes, "Measures that Could Successfully Address March 2020 Events: Through this lens, Fidelity believes the following reform measures, if properly calibrated, could address the issues faced in March 2020 and warrant further consideration by the SEC: Removal of Weekly Liquid Asset Thresholds for the Imposition of Fees and Gates.... Higher Percentages of Weekly Liquid Assets.... [and] Countercyclical Weekly Liquid Asset Requirements." They also list, "Measures that are Unworkable and/or have No Applicability to Events of March 2020: Fidelity strongly opposes the following reform options either because the measures are unworkable or would not have been effective in preventing the stresses that occurred in March 2020 (or both): Reform of Conditions for Imposing Redemption Gates and Floating NAVs.... Liquidity Exchange Bank Membership.... Capital Buffers and Requirements Governing Sponsor Support.... Minimum Balance at Risk.... [and] Swing Pricing."
