Fitch: LGIPs Unlikely to See Reforms
A press release entitled, "U.S. LGIPs Unlikely to be Affected by Money Market Fund Reform tells us, "Fitch Ratings believes that regulatory rules for U.S. local government investment pools (LGIPs) that adopt certain money market fund (MMF)-like practices are unlikely to change in response to expected MMF regulatory revisions. Due to LGIPs' generally more stable flows and adequate liquidity during the 2020 market turmoil, and in contrast to some prime MMFs' material outflows and liquidity concerns, governing frameworks for the two fund types are likely to diverge." It states, "On Dec. 15, 2021, the U.S. Securities and Exchange Commission (SEC) announced proposed amendments to Rule 2a-7 of the Investment Company Act of 1940 governing U.S. MMFs. The proposed changes for certain funds include an increase to daily and weekly minimum liquidity requirements, de-linking a fund's ability to impose liquidity fees or redemption gates from liquidity levels, and swing pricing." Fitch writes, "LGIPs are not subject to direct SEC oversight, but instead adhere to state statutes and accounting rules set by the U.S. Governmental Accounting Standard Board (GASB). The SEC's reforms could have an indirect impact on LGIPs through GASB. Prior to 2014, GASB required certain 'MMF-like' LGIPs that elected to report constant net asset values (NAVs) to adhere to MMF rules, directly referencing Rule 2a-7." The release adds, "After MMF reforms were announced by the SEC in 2014, GASB removed the direct reference to Rule 2a-7, although it replicated many of Rule 2a-7's risk-limiting provisions under GASB's statement 79 rules. These requirements address portfolio maturity, credit quality, diversification, and liquidity. However, GASB did not require LGIPs to adhere to some of Rule 2a-7's structural changes such as the switch to floating NAV reporting or the requirement to implement liquidity fees and redemptions gates during times of stress. Swing pricing for LGIPs is also unlikely to be implemented, due to GASB's recognition of the generally more limited operational capabilities of some LGIPs compared to MMFs."
