The Securities and Exchange Commission is a few steps closer to completing new rules for money-market funds (MMFs), with a vote expected by the end of April.
The regulator is once again crafting a plan that would force prime institutional MMFs to float the net asset value (NAV). However, the SEC is also considering complaints it has received from the MMF industry and is looking into exempting certain MMFs from having to float their share price.
Specifically, the SEC is considering broadening its definition of retail MMFs, which are exempt from the floating NAV in the plan, The Wall Street Journal reported. The SEC currently defines a retail MMF as a fund that prohibits shareholders from redeeming more than $1 million per business day.
Fidelity, BlackRock and other large asset managers have requested that the regulator redefine a retail MMF as one whose investors are individuals. This would simplify the process for fund managers, however, small businesses and other companies would no longer be able to invest in retail MMFs.
The SEC is also looking at an alternative that would allow MMFs to impose liquidity fees and redemption gates to avoid a run on the funds.
The SEC is currently seeking feedback on the two options. Republican Commissioner Michael Piwowar advocated for funds being able to choose which option they prefer. “My idea is, rather than us choosing for everybody, why don't we allow for both options to be offered and then investors can choose which one they want?” Piwowar said.
James Gilligan, CTP, assistant treasurer for Great Plains Energy, told AFP that he continues to have serious concerns that the changes the SEC is contemplating will have “disastrous consequences” on short-term borrowing rates. “They could drive investors from investing in MMFs altogether,” he said.
Gilligan believes the SEC is listening to the concerns from the industry, but is unsure whether that means that the proposals will ultimately be changed accordingly. “I’m anticipating the SEC will receive another round of public comments after the terms of the proposed rules are finally announced soon and I’m looking forward to providing input to the Commission on them,” he said.