New members of the Securities & Exchange Commission are calling for tougher rules for money-market funds. And the calls are coming from both sides of the aisle.
Just last week new Democratic commissioner Kara Stein said in a speech that recent efforts by the SEC are good but need to be pushed farther. “We, at the Commission, are working on rules to prevent runs on money market funds. Those are valuable efforts, but they do not go far enough to address systemic risks,” Ms. Stein said at an “SEC Speaks” conference. “Our regulations shape the role that money market funds play in providing short-term funding for issuers, particularly the largest financial firms. We must consider whether regulations need to be updated. We should consider whether enhanced capital, leverage, liquidity, and margin rules would help mitigate risks at the firms, and in the markets, we regulate.”
And in late January, new Republican Commissioner Michael Piwowar said more needed to be done “to mitigate the first mover-advantage enjoyed by investors who run during times of heavy redemptions.”
Ironically, it was the SEC in 2010 that called for MMFs to hold shorter maturities (“[A]t least 30 percent of assets must be in cash, US Treasury securities, certain other government securities with remaining maturities of 60 days or less, or securities that convert into cash within one week,” it said at the time). The commission currently is weighing what new rules to implement, including a call for a floating net asset value, liquidity fees and redemption “gates” for times of market stress. While some think a floating or variable NAV is in the offing (or most likely), others are hoping for fees and gates as those would be easier for the MMF industry to get its arms around.
Overall MMFs are not enjoying a great moment in their existence. Low rates and the prospects of regulation have led to investors abandoning the assets, although not en masse. Last week total money market mutual fund assets fell by $49.17 billion to $2.664 trillion, the largest drop since October. Many investors are moving to cash, bank deposits and other MMF-like funds.