It didn't take long for Daniel Gallagher, the SEC's newest commissioner, to disagree with the agency's chairman, Mary Schapiro.
In a speech Wednesday in Washington, Mr. Gallagher said the Securities and Exchange Commission should not move too quickly on proposing new rules to govern the operations of money market funds.
Last month, Ms. Schapiro announced in a speech to the annual meeting of the Securities Industry and Financial Markets Association that the agency will issue a proposal in the next couple of months to protect money market funds from the kind of default that forced one of them to “break the buck” during the 2008 financial crisis.
Ms. Schapiro said that the SEC is developing a rule that would require money market funds to have a source of capital to draw on in an emergency, a so-called capital buffer.
But in his remarks at a U.S. Chamber of Commerce conference on SEC reform, Mr. Gallagher said that the agency should slow down and determine the impact of money market reforms it instituted in May 2010 before it imposes new regulations.
“Any rule making in this space could be premature and possibly unnecessary,” said Mr. Gallagher, a Republican who was confirmed by the Senate on Oct. 24 and is in his 26th day as an SEC commissioner. “The option of doing nothing … ought to be given serious consideration.”
More analysis would have to be done to determine exactly what the SEC is afraid of happening in the money market area, according to Mr. Gallagher, who worked on the SEC staff for four years and served as co-acting director of the Division of Trading and Markets from April 2009 to January 2010. He said that it is not the agency’s role to guarantee returns on investments in the vehicles.
Mr. Gallagher expressed doubts about a capital buffer and said that another proposal — to instruct money funds to maintain a floating net asset value — “is an important option to keep on the table.”
Talking to reporters after his speech, Mr. Gallagher said that he's keeping an open mind about all options for enhanced money market regulation and is “just studying” the floating-NAV idea.
The main point he was making is that the SEC must have a good idea of what it is trying to fix before proposing a solution.
“What problem are we solving here?” Mr. Gallagher asked in his speech. “The risk … must be specifically and thoughtfully defined. I am concerned [that a new rule] would create the illusion of protection.”