The Securities and Exchange Commission this week released a report that sought to answer question from three SEC commissioners who were skeptical about proposals to strengthen money market funds. The commissioners, Democrat Louis Aguilar and Republicans Troy Paredes and Dan Gallagher in August helped scuttle Chairman Mary Schapiro’s plans to strengthen MMFs through a series of unpopular measures – mainly because of unanswered questions.
Those measures, including moving to floating net asset value regime, capital buffers and holdbacks, have been unpopular with the industry. The MMF industry imposed several measures in 2010, but the latest SEC report says even those would not have been enough to prevent the Reserve Primary Fund from infamously breaking the buck.
“The findings indicate that funds are more resilient now to both portfolio losses and investor redemptions than they were in 2008,” the study said. “That being said, no fund would have been able to withstand the losses that the Reserve Primary Fund incurred in 2008 without breaking the buck, and nothing in the 2010 reforms would have prevented the Reserve Primary Fund’s holding of Lehman Brothers debt.”
According to Reuters, Commissioner Aguilar has said that the study makes him more comfortable to vote on the proposals. “The huge benefit of having the study and the comments we receive on the study is that it will put me, and I suspect my colleagues, in a much better position to allow us to vote on a proposal,” Aguilar told Reuters on Friday.
Nonetheless, there is a lot on the SEC agenda that could delay another vote, not to mention a departing Chairman Schapiro, which may cause a leadership void. Her temporary replacement, Elisse Walter will have her hands full, contending with such issues as the Volcker rule, high-speed trading, the future of international accounting rules, expanded disclosure in the municipal bond market, legal challenges to Dodd-Frank Act provisions, and plenty more. Commissioner Walter is also the other Democrat on the commission. This will now split the commissioners evenly between two Democrats and two Republicans and will also likely cause further delay in getting anything done on MMFs.
Another obstacle is filling the Chairman role. Commissioner Walter is said to not want the job long-term and Mary Miller, undersecretary for domestic finance at the Treasury Department has dropped out. Others have been mentioned, including Neil Barofsky, former TARP overseer and Sallie Krawcheck, former Wall Street exec as in the running.
“Near-term there is not any leadership at the SEC, one way or the other,” said Lance Pan, director of investment research at Capital Advisors Group. “So you’re talking about not seeing anything get done.”