Schapiro: Industry 'hue and cry' won't kill money fund reform

Schapiro: Industry 'hue and cry' won't kill money fund reform
SEC boss says investors need protection -- and aims to provide it; 'working without a net'
FEB 28, 2012
Securities regulators are undeterred by the “hue and cry” raised by the $2.6 trillion money market industry against the Securities and Exchange Commission's plan to change the way the funds operate. Indeed, the agency will issue money market reform proposals in the next few months, SEC Chairman Mary Schapiro said. “We have heard the concerns and appreciate people like the simplicity of these products,” Ms. Schapiro told reporters in Washington. “But the reality is, risk isn't priced into the product.” Ms. Schapiro reiterated that the commission is considering two options for changing how money market funds operate. Both are aimed at preventing a repeat of the September 2008 situation when the net asset value of the Reserve Primary Fund fell to less than $1. Investors withdrew $310 billion from prime money market funds and the federal government had to step in and backstop the funds. The first option under consideration: allowing the net asset value of the funds to float rather than being pegged to $1. The second would impose capital requirements in combination with certain limitations or fees on redemptions, she said. The SEC will accept comments on both proposals and then choose one. “Investors have been given a false sense of security by money market fund sponsor support and the one-time Treasury guarantee,” she said in a 30-minute speech to securities regulation professionals in Washington. “Funds remain vulnerable to the reality that a single money market fund breaking of the buck could trigger a broad and destabilizing run.” In fact, she said today the nation is “working without a net,” because the rules the government relied on in 2008 to provide guarantees don't exist anymore. The Treasury used the Exchange Stabilization Fund to provide liquidity to stop the run in 2008, but that fund was eliminated by Congress when it passed the Troubled Asset Relieve Program, she said. A few weeks ago opponents began targeting the not-yet-released proposals, contending they will end the stability and liquidity that make money market funds a popular money management tool for investors and companies. Ms. Schapiro said the commission held a roundtable to consider many different solutions in May, as well as holding hundreds of meetings on this issue already. “It's time for us to take the next step,” she said.

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