SEC to Propose MMF Reforms Wed.
As we mentioned last week, the SEC posted a "Sunshine Act Notice" announcing an "Open Meeting on Wednesday, December 15, 2021 at 10:00 a.m.." It includes an item that says, "The Commission will consider whether to propose amendments to certain rules that govern money market funds under the Investment Company Act of 1940." The meeting will be webcast at www.sec.gov. Mutual fund news source ignites wrote on the announcement late last week in "SEC Puts Reforms on the Calendar." They explain, "The Securities and Exchange Commission will consider proposing a rule on money market funds next Wednesday, according to the commission's website.... The Division of Investment Management, headed by Acting Director Sarah ten Siethoff since January 2021, will facilitate the discussion, the agenda noted. The SEC has been widely expected to propose a rule that would prevent future runs on money funds. Such regulation appeared on the SEC's midyear regulatory agenda." The ignites piece tells us, "However, at least one money fund watcher is skeptical that a formal rule will be proposed at Wednesday's meeting. 'I assume it's going to be 'Should we do it?' and 'Yes' is going to be the answer,' said Pete Crane, founder of Crane Data. A proposal likely won't come until at least late January, he said, and will likely include a provision that uses liquidity fees to penalize investors who redeem first. He also anticipates new disclosure requirements.... The SEC has issued money fund reforms twice since the financial crisis. First, in 2010, the SEC finalized a rule that included liquidity, credit and stress testing requirements. Then, in 2014, it passed a rule that allowed money fund boards to impose liquidity fees and redemption gates if weekly liquid assets dipped below 30%, and implemented floating NAV requirements for institutional prime funds. Industry critics, however, have argued that fees and gates exacerbated the March 2020 run on the market." The article adds, "The ICI has argued that regulators should carefully consider potential adverse effects that reforms could have on money market funds. The lobbying group has also stressed that money funds did not cause the broad market volatility of March 2020. However, cutting the link between fees and gates, and the 30% weekly liquid asset threshold, will still make money funds susceptible to massive runs on the market, the Financial Stability Board argued in a July report. European money funds, for example, had no such liquidity threshold and experienced the same run in March 2020 as American money funds.... In February, the SEC sought comment on potential money market fund reforms. Many of the biggest money fund sponsors urged the commission to drop the 2014 reforms. However, they differed on what solutions to replace them with. Different types of money market funds should be treated differently regarding liquidity concerns, former SEC Chair Jay Clayton said in May. In June, two Boston Federal Reserve officials proposed that the SEC require prime and municipal money funds convert to government funds. Doing so would lessen the likelihood of future government intervention, they said. Swing pricing, creating a liquidity exchange bank and banning non-government money funds altogether are unlikely to be proposed, Crane said. 'You're probably not going to get a crazy regulation that hurts the industry too bad,' he added."
