When the U.S. Securities and Exchange Commission (SEC) announced
that there would be no vote on the controversial proposals to
significantly reform money-market funds, industry insiders who were
troubled with the components of the proposals rejoiced. After
nearly two years of meeting with SEC commissioners and staff,
submitting formal comments, attending Congressional hearings and
advocating tirelessly on behalf of corporate practitioners, AFP
Advocacy also rejoiced.
"The decision to cancel the vote indicated that a majority of
Commissioners took heed to the concerns that we have raised
consistently for the past two years," said Jeanine Arnett, AFP's
director of government relations & policy.
AFP Advocacy has taken every available opportunity to educate
policymakers on the detrimental impact that proposals such as
floating the net asset value could have on corporate treasurers.
"Since the initial idea was discussed in the President's Working
Group paper in 2010, AFP has consistently warned that additional
reforms could cause a disruption in the commercial paper market,"
Arnett said. AFP offered a number of formal comment letters,
both individually authored and joint letters that reiterated this
point on many different occasions. "The move to cancel the vote is
proof that the policy process is working and AFP Advocacy's message
is being heard and considered," she said.
Over the course of the debate, AFP argued that changes to MMF rules
would greatly reduce investors' interest in utilizing MMFs as a
cash management and investment tool, whether applied to all
investors or just institutional investors. Further, we voiced
strong concerns about the move to a floating NAV citing that the
potential of principal loss may preclude floating NAV MMFs from
being an approved investment alternative for many
Aside from the floating NAV issue, SEC Chairman Mary Schapiro
also indicated that her proposal would include implementing a
capital buffer to absorb losses, possibly combined with a
redemption restriction to reduce the incentive to exit the fund.
These proposals also caused corporate treasurers a great deal of
concern as the idea that there would be a holdback of funds was not
"Daily liquidity means that investors would have access to all
of the funds they invested the day before, not 97 percent of those
funds," said Brian Kalish, AFP's director of finance practice.
"Over 30 days, the implication of a 3 percent daily holdback is
certainly material and will have a substantial impact on a
company's access to cash."
Although the cancellation of the vote represents a setback for
Schapiro and the proponents of additional reforms, there is a
possibility that the Financial Stability Oversight Council (FSOC),
which was created by the Dodd-Frank Act, may take action and
identify individual fund companies for heightened scrutiny by the
Federal Reserve. Similarly, the Fed also could limit the exposure
of banks to the money-market funds that buy their short-term
AFP will continue to monitor this issue and provide updates as they
occur. To learn more about AFP's position on MMFs and stay tuned in
to the latest developments; visit the Money-Market Fund Resource
page at www.afponline.org/moneyfunds.