The Investment Company Institute
has put in its two cents regarding the Financial Stability Oversight Council's
recommended reforms for the money market fund sector.
In a 112-page letter
, the industry group made a number of tough declarations on the subject.
FSOC’s Determination Is Not Firmly Grounded in Law.
The Council’s authority under Section 120 of the Dodd-Frank Act is expressly limited: it can only make recommendations regarding enhanced regulatory standards for a financial activity or practice conducted by “nonbank financial companies” or bank holding companies.
FSOC’s Determination Is Not Grounded in Fact.
The Council’s basis for determining that “the conduct, scope, nature, size, scale, concentration, or interconnectedness” of money market funds pose systemic risks is also materially flawed in substance.
Further Fundamental Changes Are Not Necessary for Treasury, Government, or Tax-Exempt
Money Market Funds.
FSOC’s proposed determination also fails to reflect a nuanced and thoughtful analysis of the various types of money market funds and their distinct risk profiles.
Temporary Gates and Liquidity Fees Could Serve as Effective Tools to Address Redemption
Pressures in Prime Money Market Funds.
We do not believe the Report has made the case for further fundamental changes to money market funds. If, however, FSOC can demonstrate that changes are needed for prime money market funds, we would support FSOC’s recommending that the SEC propose requiring a prime money market fund to impose a liquidity “gate” if its “weekly liquid assets” fall to a specific, objective “trigger point,” set between one-quarter and one-half of the minimum weekly liquid asset level required by the 2010 amendments to Rule 2a-7 (i.e., weekly liquid assets at 7.5 percent to 15 percent of a fund’s assets).
Requiring Floating NAVs Would Harm the Market.
FSOC Alternative One would require all money market funds to let their NAVs float and to transact share purchases and redemptions at the portfolio’s daily mark-to-market value. ICI has maintained consistently since 2009 that proposals to force funds to float their NAVs reflect fundamental misunderstandings of the operation and role of money market funds, would increase systemic risk by driving investors away from money market funds to alternative products that strive to maintain stable values but that are not regulated under the Investment Company Act, and would disrupt well-established and efficient financing arrangements in the markets.
More on the ICI's stance regarding these reforms can be found in the letter
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