Federated Investors outlines how any further changes to MMF market will take time.
The last time the Security and Exchange Commission implemented new rules for money-market funds those rules spent roughly two years to in the process mill.That’s according to Federated Investors, which details the timeline in a recent report.
In an effort to get better control of what it deems the “shadow banking” of MMFs, regulators, including the Financial Stability Oversight Council, the SEC, along with the Federal Reserve, would also like to see MMFs more regulated, particularly by implementing a floating NAV regime, hold-backs and buffers, all of which regulators believe would prevent the runs they are so worried about. But if they decide to go with even just one of these proposals, it will take time.
“Under federal law, rulemaking generally involves multiple stages; the SEC may not simply change regulations overnight,” Federated wrote in its report, “SEC rulemaking: A lengthy process.” That means a period of time running from a few weeks to many months for SEC staff and commissioners to hash out the proposal draft, then when there is agreement, there is a Notice of Proposed Rulemaking detailing the proposed changes along with the reasons for them. This is then posted on the SEC website, Federated wrote.
After the Notice, there is a normally a 60 day comment period. Staff might also meet with commenters in person. When the comment period ends, it will then take several months, in some cases as much as 6 months, to review the comments. In reviewing the comments, the SEC must consider the following:
- Efficiency, competition and capital formation when it considers changing rules or adopting new rules.
- Whether such changes are necessary or appropriate in the public interest.
- The economic impact of the rule proposals. SEC rule proposals have been struck down in court on the basis of deficient cost/benefit analyses.
- Any reasonable alternative to the rules.
- Responding to substantial problems identified by commenters. If it does not and if affected persons challenge a rule adopted by the SEC, the rule may be struck down by a court as arbitrary and capricious.
Finally, when any rule is adopted, the SEC may decide to phase in rules, allowing market participants anywhere from a few months to almost two years. So with forces of MMF change gathering again – including in speeches (see Fed Governor Daniel Tarullo) and in SEC pronouncements in the press about how commissioners are more amenable to rules proposed and shot down last year, MMF users should continue to search for alternatives.