Barron's on New Money Fund Rules
Barron's writes, "`Money-Market Funds Face New Rules After Covid Stumble. Here's What Could Happen." They comment, "During the race into cash that happened at the start of the pandemic, investors pulled cash from money-market funds that invest in short-term corporate and municipal debt. That has regulators worried about the stability of the sector again, and they’re considering more rule changes to help shore it up.... As the regulatory process marches forward, strategists at Bank of America are handicapping the likelihood of different changes. U.S. officials proposed a list of 10 potential reforms in their December report, and in a May 6 note, the bank's analysts group them into three main categories." Barron's explains, "The first group would loosen the threshold where funds would have the option of penalizing investor redemptions.... The second group of proposals are meant to encourage either fund-management companies or investors to pay to offset the risk of future runs. For example, officials are considering new rules that would govern exactly when and how a fund's parent company would be required to support their funds, for example, by providing liquidity to meet investor withdrawals. And third, regulators are considering a group of ideas that are meant to reduce the likelihood investors will run to withdraw their cash in the first place. One of the options in this category would be a new rule that would reduce the incentive for an investor to try to pull their money out of a fund first. In essence, the rule would create a delay before an investor could cash out a certain proportion of their shares. That means that if there was a run on a fund, an investor who withdrew early would still share in the losses." They add, "While most money-market fund managers didn't support that idea, Bank of America said, 'it has some potential,' though it 'could reduce the attractiveness' of investing in prime or tax-exempt money-market funds.... In short, 'prime and tax-exempt MMF changes are coming,' Bank of America wrote, 'which we think are likely to weaken investor interest in these funds.'"
