AFP Reacts to Proposal to Reduce Susceptibility of Money Market Mutual Funds to Runs

The SEC and the President's Working Group on Financial Markets (PWG) have been tasked with preparing a report, due Sept. 19 outlining a plan to strengthen the regulatory framework around Money Market Mutual Funds (MMFs) to reduce the credit and liquidity risk profile of individual MMFs and to make the MMF industry as a whole less susceptible to runs.

For AFP members, these changes could increase the degree of safety of investing with MMFs, but the cost of the additional protection has yet to be determined.

Items to be considered include:

• Requiring MMFs to maintain substantial liquidity buffers
• Reducing the maximum (WAM) of MMF assets
• Tightening the credit concentration limits applicable to MMFs
• Improving the credit risk analysis and management of MMFs
• Empowering MMF boards of directors to suspend redemptions in extraordinary circumstances to protect the interests of fund shareholders

All of these items could increase the safety of the MMFs but all of these items have costs associated with them that could decrease the attractiveness of investing in MMFs.

The SEC and the PWG have been tasked with considering the impact that additional regulation could have on investor behavior.

Access to the full white paper is at http://www.afponline.org/recommendations. AFP members should send comments to Jeanine Arnett, AFP's Government Relations Manager, at jarnett@afponline.org or 301.961.8853.