After seven years of debate, one round of rules changes in 2010, followed by three more years arguing over yet another round of regulation, money market funds (MMFs) may get their final changes this Wednesday. Or, they may not.
It all depends on whether the Securities and Exchange Commission (SEC) actually votes on money market fund rule changes on July 23. The five commissioners have, to this point, not been unified on more MMF changes. They aren’t even clear about what they will vote on.
The SEC has not confirmed whether it will approve two rules governing prime institutional funds. One would remove their stable $1 net asset valuation treatment in favor of a floating NAV. The other would impose fee and delay redemption restrictions during financial shock periods. AFP opposes the so-called floating NAV as well as redemptions gates.
“We have met repeatedly with regulators and legislators to emphasize that enacting these proposed changes will not reduce systemic risk and potential runs on MMFs,” said Jim Gilligan, CTP, FP&A, assistant treasurer for Great Plains Energy. “To the contrary, we believe implementing these changes will drive investors out of MMFs, which will result in an extreme contraction of the commercial paper market. This will force corporations and municipalities to resort to higher cost financing of short-term debt affecting capital investment, jobs and prices.”
Gilligan, who has worked with AFP’s government relations initiatives for several years, added that if the SEC approves one or both of these proposals Wednesday, the Association will urge the agency to work with treasurers to develop specific rules prior to implementation that may help minimize their concerns.
Regulatory uncertainty about MMFs has played a large part in the reduction of corporate cash invested in them. Since 2007, corporate cash and short-term investment holdings in money-market funds have fallen from 31 percent to 16 percent, according to AFP’s 2014 Liquidity Survey.
Whatever the SEC commissions decide Wednesday, AFP and corporate treasurers will attend the hearing and live-tweet the proceedings at @AFPonline.