A second effort to overhaul rules governing the $2.6 trillion money-fund industry will be offered by the U.S. Securities and Exchange Commission before the end of March, said SEC Commissioner Daniel M. Gallagher.
“I hope and expect in the first quarter to have a proposal out for comment,” Gallagher said in a speech in Washington yesterday. “Hopefully soon here we will see a proposal coming out of the commission, something that is more tailored and will engender much more cooperation from the industry than we have seen before.”
Regulators have been working to overhaul rules governing the money-fund industry since the September 2008 collapse of the $62.5 billion Reserve Primary Fund. A proposal supported by former SEC Chairman Mary Schapiro to force money funds to choose between a floating share value or a combination of capital buffers and withdrawal restrictions was dropped in August after failing to win support from a majority of commissioners.
No date has been set for a new proposal to reform money funds, SEC spokesman John Nester said yesterday. Under the direction of SEC Chairman Elisse Walter, the SEC staff is discussing reform options with commissioners, he said.
In November, the Financial Stability Oversight Council, a group formed by the Dodd-Frank Act to address systemic financial risks, urged the commission to try again.
The effort appeared to be advancing in December after Democratic Commissioner Luis Aguilar, who opposed the earlier proposal, said a study issued by SEC staff indicated that money-fund rules adopted in 2010 were insufficient. He said he'll reconsider all the ideas presented before, including abandoning the industry's traditional $1 share price.
Gallagher said in September that he would probably support a fluctuating share price. He said yesterday that the commission was studying the tax and accounting impacts of such a change, which could create gains and losses for investors.
He also said the commission would confer with the Treasury Department and Internal Revenue Service “to find ways to mitigate if not resolve” concerns about the impact on investors.
“The issue is whether things are cash equivalents or not, and we have to analyze whether they are cash equivalents,” he told reporters after his speech to the U.S. Chamber of Commerce's Center for Capital Market Competitiveness.
The SEC has played “second fiddle” to banking regulators trying to complete the Volcker rule despite the agency's expertise in regulating trading and hedging practices, Gallagher told the group. The rule, mandated by the 2010 Dodd-Frank Act, would ban banks from trading with their own funds.
Gallagher is one of two Republican commissioners who have previously called for the rule to be re-proposed. The SEC is evenly divided with two Democrats and two Republicans. Regulators “could be focusing on other matters rather than spinning their wheels with no end in sight,” Gallagher said of the Volcker rule in his speech.
It's still unclear which new regulations, some mandated by Dodd-Frank, will be prioritized by Walter. She took over after Schapiro left the position last month.
Gallagher, who had public disagreements with Schapiro over the way she handled a money fund rule, was complimentary of Walter.
“She has been terrific in outreach in getting all of our input,” Gallagher said.
Gallagher said Walter could try to move forward with a regulation that would impose a uniform fiduciary duty on brokers, similar to the standard imposed on investment advisers. The SEC is working on issuing a formal request for industry comments to help regulators weigh the economic impact of a rule.
The Securities Industry and Financial Markets Association, a Wall Street trade group, said it believes the SEC will act quickly on the rule.
“I think this would be an easy one to prioritize if she wanted to, because it's further down the road than others,” said Gallagher, who has urged caution on any changes.
Gallagher also said he and fellow Republican Commissioner Troy Paredes oppose a proposal to require public companies to disclose their political spending. On a commission with only four members, their opposition might stop the measure from moving forward.
The SEC said last week that its staff was considering whether to recommend such a proposal.
“That should not be one of our priorities,” Gallagher said. “That is just a political wish-list item. I think I speak for myself and I can speak for Commissioner Paredes. We have no interest in pursuing that.”