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High Noon on Capitol Hill: Congress Warns SEC on MMFs

  • By Jeanine H. Arnett, Director, Government Relations & Public Policy, AFP
  • Published: 2012-04-19

The Chairman and Vice Chairman of the House Financial Services Committee have sent a strongly worded letter to U.S. Securities and Exchange Commission (SEC) Chairman Mary Schapiro urging her and the agency's commissioners to refrain from making additional rule changes to money market funds (MMFs).

In the April 17 letter, Chairman Spencer Bachus (R-AL) and Vice Chairman Jeb Hensarling (R-TX) point out that the SEC has already missed a number of rulemaking deadlines under Dodd-Frank and question whether the agency has performed a cost benefit analysis substantial enough to warrant additional rules at this time.  

The Committee leaders urged Chairman Schapiro in their letter to "first determine whether further reforms to money market funds are needed before choosing among the various reform proposals that are reportedly under consideration." Their position underscores AFP's longstanding stance that the Dodd-Frank rules instituted in 2010 were significant changes that will, on their own, substantially reduce the liquidity concerns and systemic risks posed by MMFs. AFP also believes the SEC should allow the rules to serve their intended purpose before instituting any additional rules, which would likely eliminate MMFs as a viable investment alternative for many corporate investors.

Since the release of the MMF rule changes nearly two years ago, AFP has been vocal with our concerns regarding the option to eliminate the stable NAV in favor of a floating NAV, and we have been clear on our opposition to this idea. Such a change would greatly reduce investors' interest in utilizing MMFs as a cash management and investment tool, whether applied to all investors or just institutional investors. For purchasers of MMFs, the return of principal is a much greater driver of the investment decision than return on principal. For a large number of institutional investors, the potential of principal loss would preclude floating NAV MMFs from being an internally approved investment alternative.

To learn more about AFP's position on MMFs, visit the Money Market Fund Resource page at www.afponline.org/moneyfunds.

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