SEC to Push for Money Market Mutual Fund Reform Provisions Despite Opposition

According to Securities and Exchange Commission Division of Investment Management deputy director Robert Plaze, the division is ready to recommend new reforms for mutual market funds as soon as Chairman Mary Schapiro gives the go ahead. Plaze spoke to reporters following at panel at the Mutual Fund Directors Forum’s yearly policy conference in DC on June 19. He was clear to note that the opinions he expressed are his own. On June 21, Schapiro said that she plans to wait until later in July to decide whether to push the division’s recommendations to a commission vote.

While lawmakers and industry members disagree, Schapiro has stayed firm in her belief that money market funds are risky and require more reforms beyond the changes to MMF requirements that the Commission signed off on in 2010. Among the options to increase money market fund resiliency that staff has been considering are mandating capital buffers accompanied by redemption limits or fees or transferring the funds from their fixed $1 net value asset to a floating one.

However these reform measures, even without their formal proposal, are already being heavily criticized. Some are worried that the potential measures might cause investors to abandon the products and sponsors to leave the industry. These critics generally believe that the changes that were made to SEC regulations in 2010 have been sufficient to strengthen the funds’ framework. For example, the Commission amendment to the 1940 Investment Company Act’s Rule 2a-7 improved fund disclosures while limiting fund risks.

Among the lawmakers who remain skeptical of the need for more reform is Sen. Pat Toomey (R-Pa.), who doesn’t think that money market funds are risky products. Meantime, Sen. Robert Menendez (D-N.J.) wants to know whether the SEC is going to issue data on what impact the 2010 MMF reforms have had before it goes ahead with a proposal.

Schapiro says that the SEC will be providing information from its study of the 2010 reforms. She has been clear to point out that the rules aren’t the solution to the problem that worries the Commission the most: that a credit event may cause a money market fund to experience a severe loss and that a run could be likely. Also, last month, the US Chamber of Commerce put out a white paper suggesting that the reform measures that the SEC is considering would increase money market fund costs, hurt government, and create more systemic risks. (Even at the SEC Schapiro reportedly has opponents to her pursuit of more money fund reforms: Luis Aguilar, Daniel Gallagher, and Troy Paredes. This means that all of the votes needed to push the proposal ahead may not be there.)

If you believe you were a victim of money market fraud, do not hesitate to speak with one of our securities lawyers. Your first case evaluation with Shepherd Smith Edwards and Kantas, LTD, LLP is free.

SEC Staff Ready to Recommend Measures To Reform Money Funds, Senior Official Says, BNA Bloomberg
Mutual Fund Directors Forum

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Money Market Fund Portfolio and “Shadow NAV” Information Now Available to the Public, Says SEC, Stockbroker Fraud Blog, February 16, 2012

SEC is working on issues related to asset-backed securities, credit ratings, and money market mutual funds, says Schapiro, Stockbroker Fraud Blog, January 31, 2010
NYSE Euronext Head Wants SEC to Revive Rule Proposal Enhancing Dark Pool Transparency, Institutional Investor Securities Blog, July 4, 2012