SEC's White plays money market reform close to the vest

In front of mutual fund group, chief regulator says little about revamp.
MAY 31, 2013
Making her first major public speech to an audience of mutual fund executives, Securities and Exchange Commission Chairman Mary Jo White said next to nothing about one of their biggest concerns — a regulatory revamp for money market funds. “As the SEC works to develop and propose meaningful money market fund reform, our goal is to preserve the economic benefits of the product while addressing potential redemption pressures and the susceptibility of these funds to runs — runs in which retail investors are especially likely to suffer losses,” Ms. White told the audience at an Investment Company Institute conference in Washington today. The agency scrapped a proposal last summer that would have offered a couple of alternatives for strengthening rules surrounding the funds, which total about $2.6 trillion. One would have allowed the net asset value of funds to fluctuate with changing market conditions instead of staying fixed at $1 as they are now. Another approach would have been to require funds to maintain capital reserves and institute redemption controls. The agency will re-propose a money fund rule “in the near future,” Ms. White said without offering specifics. “I am confident that the ultimate result of this process will take into account the views of commissioners who vary in background and perspective but share the goals of protecting investors and promoting market efficiency and capital formation,” Ms. White said. Money fund reform was a priority of Ms. White's predecessor, Mary Schapiro. The latter said that precipitous withdrawals from money funds — such as the one that caused the collapse of the Reserve Primary Fund in 2008 — continue to represent a systemic risk to financial markets. But Ms. Schapiro failed to get a majority of the SEC's five commissioners to support last year's proposal, which drew strident opposition from the financial services industry. After prodding by the Financial Stability Oversight Council, the SEC appears poised to try again on money fund reform. Ms. White didn't elaborate on the SEC's plans, even when ICI president Paul Schott Stevens tried to draw her out during a Q&A session. “I have 12 questions on money market reform,” Mr. Stevens said. Ms. White replied: “I have one answer.” The Wall Street Journal reported today that the agency is considering limiting the requirement of a floating NAV just to “prime” money market funds, which invest in corporate debt.

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