The cherry blossoms are off the trees in Washington, DC, which means that once again the mutual fund industry's top executives have made their annual pilgramage to the nation's capital. This year, Paul Stevens
put money market mutual funds and the potential regulation of mutual funds by the Commodity Futures Trading Commission (CFTC
) at the center of his opening remarks.
Both of those issues are ones in which the Investment Company Institute (ICI
) is gearing up for legal challenges to regulators.
Stevens also paid tribute to Capital Group
, who is retiring from the ICI board.
Stevens reminded the audience of mutual fund executives that it was the ICI that was at the forefront of the working committee formed in 2009 in the wake of the financial crisis and the run on The Reserve's money market fund. Yet, he lamented that the ICI is now "at loggerheads" with the Securities and Exchange Commission (SEC
) on the issue.
"There are occasions where we have fundamental differences with the SEC," said Stevens, adding that the ICI's members "really have their work cut out for us" in convincing the ICI of the best way for it to promote "efficiency, competition and capital formation."
Stevens argued that mutual fund shareholders will lose if the CFTC's proposed rules requiring mutual funds to register with it becomes permanent.
"We have seen the rule and do not hear the harmony," he said in a play on the CFTC's promise to harmonize its rules with the SEC.
He admitted that the recent lawsuit
filed by the ICI and the U.S. Chamber of Commerce to fight the rules was not a step taken lightly and is not "usual practice."
"Two things are absolutely certain: Commodity funds are not driving prices of commodities, and penalizing mutual funds will only hurt shareholders," Stevens said.
Turning to money market funds, Stevens argued that the funds have put a quarter trillion dollars into shareholders' pockets that would not otherwise have been there.
"Money market funds help keep the lifeblood of the economy flowing," said Stevens.
The SEC is currently mulling over rules that include new capital buffer requirements and floating NAVs, changes that critics warn would destroy the value of the funds for shareholders.
Stevens told mutual fund executives that four out of five institutional shareholders would reduce their use of the funds if NAVs are required to float. He predicted that the rule changes could cost money funds 60 percent of their current asset base.
He also argued that many money fund sponsors would abandon the niche if they were put into a "first loss" position through the requirement of capital buffers.
"The impact is quite simply mind boggling," said Stevens.
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