The U.S. Chamber of Commerce has written a letter to Treasury Secretary Timothy Geithner asking him to rescind the request he made to the Financial Stability Oversight Council to press the Securities and Exchange Commission to take further action on money market mutual funds. Instead, they want the SEC to be allowed to first finish its study on the impact its 2010 reform steps have already had up to this point.
The Chamber implied that if FOSC were to invoke its powers, per the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 120, to make the SEC act, this could place the financial markets in peril. It said that not only was invoking Section 120 premature, and at “cross-purposes” with the mandate the Commission has to “promote capital formation” but also this would subject money market mutual funds to what would be the equivalent of “joint oversight by the FSOC.”
Under Section 120, the FSOC is authorized to recommend that primary financial regulators implement “new or heightened standards and safeguards” after finding that a financial activity could create systemic risk. Such a recommendation has to be made available for public comment before it is formally adopted. (Following a final recommendation, the Commission would have 90 days to comply, implement a similar measure, or give reason for why it chose not to act.)
“Business owners are solicited to join the Chamber of Commerce and pay dues. But does the ‘Chamber’ even represent their interests?,” said Shepherd Smith Edwards and Kantas, LTD, LLP Founder and Money Market Mutual Fund Fraud Attorney William Shepherd. “This is an example of how the Chamber spends their dues. But I would say that the vast majority of those who own businesses are more interested in transparency and safety when they invest into money market funds than protecting those running these funds from regulations.”
Geithner, who is also FSOC chairman, had introduced a parallel strategy a couple of months ago that he said would assist in limiting systemic risk from money market funds. In addition to a letter to council members urging the FSOC to use Section 120 to make a formal recommendation of action by the SEC, he also put out groundwork for a number of measures by federal regulators should the Commission decide not to act.
The Treasury Secretary’s plan involves two initiatives that the SEC is considering: Requiring the funds to keep capital buffers or moving them to a floating net asset value. (SEC Chairman Mary Schapiro, who in August wasn’t able to garner enough commissioner support to move forward with proposed money market mutual fund measures, has expressed support for Geithner’s plan. She too believes that money market funds are a systemic risk.)
Addressing the 2010 rule changes by the SEC in 2010, Geithner, in his letter, said that they failed to tackle a couple of core money funds characteristics that place the funds at risk of “destabilizing runs”: a “first-mover advantage,” which can spur investors to redeem shares upon first signs of a possible threat to the liquidity or value of the fund, and the need for “explicit loss-absorption capacity” in the event of a decline in a portfolio security’s value.
Financial Stability Oversight Council
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