The Securities and Exchange Commission's proposed rule changes for money market mutual funds are not likely to have a negative impact on the $3.55 trillion industry, experts say. Still, if the SEC responds to calls to alter its proposed changes, it could wind up affecting money managers' ability to deliver yield.
The SEC's proposed rule changes include reducing the weighted average maturity to 60 days from 90 days; establishing new liquidity requirements for retail and institutional funds; prohibiting the funds from investing in so-called second-tier investments, which include anything below the highest-quality securities; and additional disclosure requirements.
“None of these proposals would cripple money funds or even cause serious harm,” said Pete Crane, president of Crane Data LLC, a money fund research firm.
The Investment Company Institute, a lobbying group for the funds industry, expressed its general support today for the SEC proposals.
“Much of it is very parallel to what the industry has proposed itself with the Money Market Working Group and has voluntarily adopted,” said ICI spokesman Mike McNamee.
Still, ICI expressed a number of concerns, including its opposition to establishing different liquidity requirements for retail and institutional money funds. It also objected to a proposal that would prohibit investing in illiquid securities.
The ICI added that it supports a 75-day weighted average maturity, as opposed to the 60-day proposed.
The concept that fueled the most controversy was the idea of instituting a floating net-asset value for the funds, to replace the current system of a $1 NAV.
While the SEC did not propose a floating NAV, it asked for public comment on the concept for future consideration.
The idea received negative responses from many of the 61 firms and parties — including the ICI — that posted comments on the proposal by the Sept. 8 deadline.
“I don't think there is any chance of money funds being forced to switch to a floating-rate NAV,” Mr. Crane said.
“I'd be very surprised if the SEC changed it altogether to a floating NAV, given the opposition,” said Connie Bugbee, the managing editor at iMoneyNet.
“Maybe sometime down the line, but I don't think we'll see it proposed right away.”
No date has been set yet for the SEC to make its final vote on the proposals.
“Staff will analyze the comments,” SEC spokesman John Nester wrote in an e-mail.
“The timing of any recommendation to the commission will depend in part on the number of issues raised and their complexity.”