A series of comments has been posted seconding Vanguard's initial objection to the SEC's July 1 proposal, "References to Ratings of Nationally Recognized Statistical Rating Organizations," to remove NRSROs from the language of Rule 2a-7, the regulations governing money market funds. In comments to date, the mutual fund industry has been unanimously opposed to removing the mandated "First Tier" outside ratings agency requirement. September 5 is the deadline for feedback.
Two fund board chairs added their thoughts recently. Michael Scofield, Chairman, Evergreen Board of Trustees, wrote, "The Boards of Trustees of Evergreen Money Market Trust and Evergreen Select Money Market Trust strongly oppose the Commission's proposal to eliminate references to the credit ratings issued by nationally recognized statistical rating organizations in Rule 2a7.... The Board believes that NRSRO credit ratings serve an important independent role in assessing the quality of money market fund investments. We are in favor of improving the quality of NRSRO credit ratings, and we support the Commission's efforts in this regard. However, we believe that simply eliminating references to NRSROs would significantly weaken the investor protections of Rule 2a7 and place an inappropriate burden on trustees of money market funds."
Also, Virginia Stringer, Board Chair, First American Funds, wrote, "We are responding to your recent proposal to eliminate references to ratings issued by nationally recognized statistical rating organizations (NRSROs) from Rule 2a-7 under the Act. As we explain in more detail below, we are greatly concerned with the implications of replacing ratings provided by NRSROs, which have vast infrastructures and substantial expertise, with credit and risk determinations made by fund boards, whose members almost uniformly lack the knowledge and background necessary to make credible credit assessments.... We strongly urge the Commission to reconsider its proposed changes so that, if NRSROs are to be off the table, investment advisers, not fund boards, would have primary responsibility for credit evaluation."
Finally, Crane Data's own Peter Crane commented to the SEC, "If it isn't broken, don't fix it. We fear that the proposed change will be seen by money fund investors and the broader financial press as a weakening of standards. Given the current extremely sensitive environment, it is the wrong time to make a change that might cause investors to question the motives behind such a move.... Money market mutual funds, currently almost $3.6 trillion, have proven to be one of the greatest success stories in the history of financial products. The SEC's Rule 2a-7 deserves much of the credit, protecting individual investors from ever experiencing a "breaking of the buck". We urge the Commission to let the dust settle from this current crisis before making any changes to the current regulatory regime."
