US SEC drops MMF proposals
28 August 2012 Washington, DC
Image: Shutterstock
Proposals that would have reformed the multi-trillion dollar US money market fund (MMF) industry were dropped after three US SEC commissioners objected to them.
US SEC chairman Mary Schapiro wanted to reform the MMF industry’s structure so that retail investors could be protected and future taxpayer bailouts could be avoided.
MMFs showed structural weaknesses during the 2008 financial crisis, when they failed to absorb losses in the value of portfolio securities and withdrew hundreds of millions of dollars from prime money market funds, after running “at the first sign of a problem”, according to a statement from Schapiro.
The reform proposals would have seen MMFs float the NAV and use mark-to-market valuation. Alternatively, they would have used a tailored capital buffer of less than 1 percent of fund assets, which could be adjusted to reflect the risk characteristics of an MMF.
But three US SEC commissioners have objected to the proposals, so they cannot be published for public comment and there will be no public vote on them.
In her statement, Schapiro said: “The issue is too important to investors, to our economy and to taxpayers to put our head in the sand and wish it away. Money market funds' susceptibility to runs needs to be addressed. Other policymakers now have clarity that the SEC will not act to issue a money market fund reform proposal and can take this into account in deciding what steps should be taken to address this issue.”
The International Organization of Securities Commissions’s (IOSCO’s) chairman of the board, Masamichi Kono, issued a statement that did not comment on Schapiro’s statement directly. But Kono did reaffirm IOSCO’s commitment to developing policy recommendations for strengthening oversight and regulation of the shadow banking system, including MMFs.
US SEC chairman Mary Schapiro wanted to reform the MMF industry’s structure so that retail investors could be protected and future taxpayer bailouts could be avoided.
MMFs showed structural weaknesses during the 2008 financial crisis, when they failed to absorb losses in the value of portfolio securities and withdrew hundreds of millions of dollars from prime money market funds, after running “at the first sign of a problem”, according to a statement from Schapiro.
The reform proposals would have seen MMFs float the NAV and use mark-to-market valuation. Alternatively, they would have used a tailored capital buffer of less than 1 percent of fund assets, which could be adjusted to reflect the risk characteristics of an MMF.
But three US SEC commissioners have objected to the proposals, so they cannot be published for public comment and there will be no public vote on them.
In her statement, Schapiro said: “The issue is too important to investors, to our economy and to taxpayers to put our head in the sand and wish it away. Money market funds' susceptibility to runs needs to be addressed. Other policymakers now have clarity that the SEC will not act to issue a money market fund reform proposal and can take this into account in deciding what steps should be taken to address this issue.”
The International Organization of Securities Commissions’s (IOSCO’s) chairman of the board, Masamichi Kono, issued a statement that did not comment on Schapiro’s statement directly. But Kono did reaffirm IOSCO’s commitment to developing policy recommendations for strengthening oversight and regulation of the shadow banking system, including MMFs.
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
