Recent reports that final money market fund rules from the Security & Exchange Commission could come by the end of July may be a sign that internal debates on the rules have ended. According to news reports, the SEC will go ahead with its plans to make certain funds use a floating net asset value (NAV) as well as implement so-called “gates and fees.”
The SEC, which first tried to implement the rules in 2010, has met with internal debate from several commissioners who think the rules won’t work or are too stringent. The floating NAV has been one of the most objectionable aspects of the rule, which would apply to retail funds but not government money market funds nor possibly municipal funds.
“Clearly someone inside compromised,” said Peter Crane, President & CEO of Crane Data. Mr. Crane speculated that there could have been a deal on whether the IRS will treat any small moves in net asset values as de minimis, which wouldn’t have to be reported. The plan to exclude municipal-based MMFs and lower the redemption fee also might have swayed commissioners.
At some point over the last several years, most of the five commissioners (which include Chairman Mary Jo White) have objected to the rules and for a variety of reasons. Kara Stein, a new commissioner and a Democrat, thinks the rules don’t go far enough. Another new member, Michael Piwowar, a Republican, doesn’t see the justification of going to a floating NAV. Commissioner Luis Aguilar wants more information on impact and Commissioner Daniel Gallagher thought the rules too rigid and wants, among other things, more flexibility given to boards on redemption fees during a crisis. That fee could drop to 1 percent from the currently proposed 2 percent, according to Mr. Crane.
As for a coming vote, it is said that both Commissioners Aguilar and Gallagher will vote with Ms. White to implement the rules. Ms. White can go forward with three votes.
For treasurers, it’s more speculation, more wait and see, and more searching for a place to put hot money. “At this point, it seems most treasury professionals are taking an ‘I will believe it when I see it approach’ to proposed rule changes,” said Brandon Semilof, Managing Director, StoneCastle Cash Management. “That being said, we are seeing an increase in demand for alternative cash management solutions.” These include StoneCastle’s Federally Insured Cash Account (FICA), which can offer safety, liquidity and yield and also the assurance of stability. Other offerings include MMF-ish products from PIMCO, Barclays and Guggenheim Investments. These are short-duration bond exchange-traded funds, which are considered cheap, safe and liquid.
Mr. Semilof said implementation of potential new money fund rules along with the impact of Basel III on large banks “will most likely force many treasurers to begin seeking alternative options for liquid cash balances.”
But implementation could be a long way off, Mr. Crane said. That’s because there has been talk of increasing the phase-in period to three years from the currently proposed two.