AFP Government Relations Committee Chairman James P. Gilligan,
CTP, told Congress September 18 that proposed changes to
money-market fund (MMF) rules would damage a critical short-term
financial source for treasurers.
It's "another case where the medicine may kill the patient,"
said Gilligan, assistant treasurer for Kansas City, Missouri-based
Great Plains Energy Inc., a holding company of Kansas City Power
and Light Company.
Gilligan gave his remarks before the U.S. House Financial
Services Committee. He was joined by representatives from the MMF
industry, municipalities and former Federal Deposit Insurance
Corporation Chair Shelia Bair.
The proposed Securities and Exchange Commission (SEC) amendments
to 2a-7, the rules governing MMFs, would remove amortized cost
valuation for prime institutional MMFs, floating their net asset
value (NAV), or impose gates and liquidity fees upon share
redemption, or a combination of both. AFP believes any changes to
2a-7 must not eliminate the investment incentive that underlies
MMFs' cash management function, and floating the NAV or setting
redemption limitations would do just that.
Gilligan argued that the resulting cost of triggered investor
withdrawal, accounting, tax and investment policy complications
outweigh the effectiveness of the proposed changes aimed to thwart
potential market runs.
As an issuer of commercial paper on behalf of his company,
Gilligan further warned members of U.S. Congress that the almost
half of all outstanding nonfinancial commercial paper purchased by
MMFs could "drop significantly and the commercial paper market
would be substantially less liquid," under the SEC proposals. Where
his company can presently offer "interest rates to investors on our
commercial paper in the current range of 30 to 70 basis points," he
said, a constrained commercial paper market would force day-to-day
liquidity needs to rely on the more costly alternative of bank
"On the investing side, corporations would be forced to withdraw
from prime money market funds to ensure full access to their
money," Gilligan said. "On the funding side, a decrease in 2a-7
capacity would lead to higher costs and less liquidity for
commercial paper issuers."
Read Gilligan's full testimony
Read AFP's comment letter to the SEC