The Debate Continues – US Money Market Fund Update

March 04, 2013

Since the U.S. Financial Stability Oversight Council (“FSOC”) issued proposed recommendations to the U.S. Securities and Exchange Commission (“SEC”) regarding additional reforms to money market fund (“money fund”) regulation on November 13, 2012 (“FSOC Recommendations”), there have been a number of important developments, including:

  • In December 2012, the SEC published for public comment a report prepared by the staff of the Division of Risk, Strategy, and Financial Innovation (“Staff Report”), which responded to questions that had been posed by Commissioners Aguilar, Paredes and Gallagher regarding the need for additional money fund reform;
  • In January 2013, the Investment Company Institute (“ICI”) released a study entitled “Money Market Mutual Funds, Risk, and Financial Stability in the Wake of the 2010 Reforms” (“ICI Study”), in which the ICI concluded that money funds’ ability to manage both the Eurozone crisis and U.S. debt ceiling crisis in 2011 demonstrated the efficacy of the 2010 Amendments (as hereinafter defined);
  • In January 2013, several large money fund complexes announced that they would be posting on their websites daily marked-to-market net asset values (“NAVs”), a move interpreted by some as an effort to dispel the need for further money fund reform; and
  • In February 2013, the comment period on the FSOC Recommendations ended and many commenters expressed their concerns regarding many aspects of the FSOC Recommendations, especially the FSOC’s proposal for requiring certain money funds to convert to a “floating NAV.”

These developments have added to the discussion in the ongoing debate over whether additional reforms of money fund regulations are necessary, but their effect on the SEC and the FSOC remains unclear. There are some indications that the SEC may take the lead to issue proposed reforms, based on public comments from SEC Commissioners who previously opposed additional money fund reform and have modified their positions.4 In addition, an SEC Commissioner recently expressed concerns over the FSOC’s structure and its involvement in the money fund reform process. The nomination and potential confirmation of Mary Jo White as the new SEC Chairman may also lead to action by the SEC on money fund reform. However, at present, Ms. White’s views on the advisability of further money fund reform or on particular reforms are unknown.

Read “The Debate Continues – U.S. Money Market Fund Update.”