CFO on SEC Money Market Fund Rules
CFO Magazine writes, "SEC Tries to Patch Money Market Rules." They ask, "Will the newest round of money market fund reforms from the Securities and Exchange Commission cause corporate treasurers to ditch the vehicles as a parking place for excess cash? Last December, the SEC proposed its third set of money market reforms in a decade-and-a-half. Like previous changes, the new rules are intended to 'enhance the resiliency of this crucial $5 trillion asset class during periods of stress,' as SEC Chief Gary Gensler put it. The rules deal with fund liquidity levels, changing who bears the costs when there's a flood of investor redemptions, and removing some safety mechanisms established a few years ago. The SEC tinkered with money market fund rules since the financial crisis, and most of the rules have made prime money market funds less attractive to institutional investors." The article explains, "Money market funds once seemed to be the perfect short-term investing vehicle to invest excess corporate cash because they offered stability of principal, diversification, and daily liquidity. Over the years, though, corporate treasurers have allocated a smaller portion of excess cash to prime funds. On average, companies had about 5% of their short-term cash in prime or diversified money market funds in 2021, according to the AFP's annual liquidity survey. That compared with 52% in bank deposits and 17% in government or Treasury money market funds." It adds, "If the rules are approved, the higher liquidity levels in prime funds may compress yields and drive investors into treasury and government MMFs, according to Fitch Ratings. The swing pricing requirement, however, is the real potential thorn in the industry's side. That requirement 'would likely entail significant operational complexity, which could discourage investors from buying the funds and managers from operating them,' said Fitch.... SEC Commissioner Hester Pierce, who in December called the reform proposals too prescriptive, predicted swing pricing would drive more prime fund money into government funds, 'leaving investors, issuers of commercial paper, and markets worse off.'"
