Fitch on SEC Reforms, Stablecoins
Fitch Ratings posted the press release, "SEC Money Fund Proposals Credit Positive But May Result in Outflows." It says, "The SEC recently proposed amendments to Rule 2a-7 of the Investment Company Act of 1940 governing U.S. money market funds (MMFs) in an effort to address resiliency and liquidity concerns arising from the market volatility in March 2020 amid the pandemic fallout. The credit implications for MMFs will depend on the final form of the regulation. Fitch Ratings believes the proposals could be incrementally credit positive and that most amendments are likely to be supported by market participants. That said, swing pricing will face strong industry pushback over the 60-day comment period and could lead to large outflows or closure of institutional prime funds." Fitch continues, "Proposals include the elimination of liquidity fees and redemption gates, an increase to daily and weekly minimum liquidity requirements, mandatory swing pricing for institutional prime and tax-exempt MMFs, amendments to regulatory reporting and calculation requirements and proposals for increased transparency.... The proposed increases to minimum liquidity requirements are supportive of credit, with minimum daily liquid assets (DLA) moving from 10% to 25%, and minimum WLAs moving from 30% to 50%.... However, elevated liquidity in institutional prime funds may compress excess yields relative to treasury and government MMFs, reducing investor appetite for prime funds over time. The current low-yield environment exacerbates this issue since spreads are compressed. The implementation of swing pricing would require adjusting a fund's net-asset value (NAV) by a swing factor equal to the estimated costs of selling a pro-rata or vertical slice of the portfolio during each net redemption pricing periods. This would likely entail significant operational complexity, which could discourage investors from buying the funds, and managers from operating them." Fitch also published a "Stablecoin Dashboard: 3Q21." It explains, "Fitch Ratings estimates the stablecoin market grew by around 445% to around USD155 billion in the year to 13 December 2021, with the majority referenced to US dollars. Nonetheless, the approximate 20% growth in 3Q21 was behind that of 2Q21 (around 80%) and 1Q21 (around 120%). The market is concentrated, with the two largest stablecoins, Tether and USDCoin, accounting for around three quarters of total assets as of end-3Q21."
