2011 good sign money market reform not needed: ICI

The past year has seen its fair share of market shocks, from the downgrade of the U.S. credit rating to the ongoing sovereign-debt crisis in Europe. Investors have felt the effects with wild swings in stock prices. One area that's held steady — perhaps surprisingly so — has been money market funds. Indeed, the funds have been rock solid despite serious concerns about their exposure to European debt. “What we've seen has all been very good,” said Karrie McMillan, general counsel for the Investment Company Institute, which represents fund firms. Whether it's good enough for the SEC remains to be seen. In the first quarter of 2012, the Securities and Exchange Commission is expected to issue a proposal to help safeguard money funds, either by having a fund's net asset value float above or below $1 or by requiring a capital buffer that could be tapped in the face of excessive withdrawals. “There is a lingering concern about how money market funds will stand up in a significant financial crisis,” SEC Chairman Mary Schapiro said in a speech in November. But Ms. McMillan believes that the performance of money funds this year is a good indicator of how they'll hold up during financial crises. She contends that previous money fund reforms enacted by the SEC in February 2010 are working. Those mandates, triggered by the Primary Reserve Fund's breaking of the buck during the financial crisis, included rules that restricted money market funds from having an average weighted maturity of less than 120 days. The commission also lowered the amount of assets in lower-credit-quality securities the funds could hold and forced fund firms to have at least 10% of assets in cash or cash equivalents daily. Ms. McMillan believes further action by the SEC isn't necessary — and could hurt the industry by making the funds less attractive to investors. That's the last thing money fund firms need at the moment. The average money market fund is currently yielding 0.02% —$20 for every $10,000 invested. Those puny yields have triggered an exodus of investors. Money market funds held nearly $4 trillion in assets at their peak in 2008. As of the end of November, that number was down to $2.5 trillion.