Although the Securities and Exchange Commission is eyeing regulatory changes for money market mutual funds, industry observers are not expecting stricter standards than those adopted by the Investment Company Institute last week.
Although the Securities and Exchange Commission is eyeing regulatory changes for money market mutual funds, industry observers are not expecting stricter standards than those adopted by the Investment Company Institute last week.
“They are all reading from the same book, and the ICI wrote most of that book,” said Peter Crane, president of the Westborough, Mass.-based Crane Data LLC, which conducts research on the money fund industry.
“The majority of the ICI recommendations should move through the SEC intact. I think they are looking at heightened security, but no major surgery.”
SEC Chairman Mary Schapiro told the Senate Banking Committee yesterday that the agency will “quickly … strengthen the regulation of money market funds.”
The goal is to shore up the investments and mitigate the risk of a fund “breaking the buck, or dropping below a net asset value of $1, she said.
The ICI, a Washington-based industry organization, last week released a comprehensive set of standards endorsed by its board of governors for adoption as general industry practices.
The recommendations provide for tighter control over investments and more transparency. They also propose new daily and weekly minimum-liquidity requirements and a reduction in a portfolio’s average maturity limit to 75 days from 90 days.
“The recommendations of the ICI are so comprehensive,” said Connie Bugbee, managing editor of iMoneyNet, a Westborough, Mass., research firm. “I cannot imagine there are too many other things left to do with it [in terms of regulations].”
Investors have been fearful of money market funds since September when the Reserve Primary Fund, offered by The Reserve Management Co. Inc. of New York broke the buck.
“Funds are already safer than they were prior to September 2008. They are also constrained by the low-yield boundary. They cannot get too much more conservative because they have to keep the lights on and they have expenses,” Mr. Crane said.
“The fact is that with a bank or a money market fund, if everyone shows up tomorrow and asks for their money, you will have a problem. There’s no way to stop a run, but you can try to lessen the risk. The ICI recommendations are likely the way things will go and the right way to go,” Mr. Crane said.
The industry is already moving toward implementing the ICI standards.
“Last week, the ICI called for new regulatory and oversight standards for money market funds, including mandating new minimum-liquidity standards, tightening portfolio maturity limits and raising credit quality standards,” Paul Schott Stevens, ICI president and chief executive wrote in an e-mailed statement.
“The SEC and the administration are looking at these issues as well and we look forward to working with regulators and policymakers as they consider how to move forward. In the meantime, the industry is moving ahead with voluntary implementation of the new standards recommended by ICI.”
