ignites: SEC May Ditch Swing Pricing
Last week, ignites featured the news piece, "SEC Vote on Money Funds May Not Include Swing Pricing," which says, "The Securities and Exchange Commission is expected to finalize its proposed reforms to money market funds ... Wednesday, according to a newly posted meeting agenda. The latest round of money market fund reforms were proposed in December 2021 and included a provision that would require swing pricing for institutional prime and institutional tax-exempt money market fund types when redeeming. The proposal would also remove the link between weekly liquid asset thresholds and so-called liquidity fees and redemption gates, which critics argued created more of a cement floor than a cushion for shareholders." The piece continues, "The agenda item provides no detail about the contours of the final rule. This would be the third reform of the product type since the financial crisis of 2008, when the bankruptcy of Lehman Brothers led the $64.8 billion Reserve Primary Fund, a money market fund, to have a net asset value of less than $1.00 per share, or 'break the buck,' forcing it to cease operations and liquidate. The first reform was finalized in 2010 and the second in 2014. In March 2020, money market funds accepted Federal Reserve liquidity backstops to prevent another fund from breaking the buck amid the American onset of the coronavirus pandemic. Since then, SEC Chair Gary Gensler, Federal Reserve Chair Jerome Powell, Treasury Secretary Janet Yellen and international regulators have all criticized money market funds as a risk to financial stability.... Last month, Gensler hinted that the SEC may substitute swing pricing for liquidity fees. The language in the announcement does not mention swing pricing, noted Stephen Cohen, a partner at Dechert." Cohen comments to ignites, "I think there's a good chance [swing pricing won't be in the final rule], but I wouldn't want to put a percentage to it.... If the industry had its way, it would just remove liquidity fees and gates and increase the daily and weekly liquid assets and call it a day, but I think the SEC wants to institute some sort of anti-dilutive measure." They quote "Pete Crane, chief executive of Crane Data, also is 'contrarian' and thinks the SEC will '[abandon] its infatuation with 'swing pricing' and [switch] to a tiered liquidity fee structure for prime institutional money funds that see big outflows,' he said. Neither swing pricing nor amended liquidity fees should affect money market funds much, because at least 75% of money market fund assets are Treasury or government money funds, he said. The ICI is less optimistic that much will change from the proposal, said Stephen Bradford, senior director of public affairs for the fund trade group. 'I expect a majority for swing pricing as proposed, and there is a slim likelihood, but still a likelihood, that they may pivot to a fee,' he said."
