At least 135 letters have now been posted commenting on the SEC's Money Market Reform Proposals. Given the volume of feedback (we'll be reading these for the next several weeks), we would expect any Final Rules on Money Market Fund Reform to appear around year-end, at the earliest. Many of the letters argue for extended implementation periods, as well, so don't expect any action anytime soon.
We believe the road to consensus and compromise is now relatively clear, though there are a number of minor issues that the SEC could have a tough time with. Every single letter has lambasted the idea of a floating rate NAV, save for perhaps one or two from fringe (or anonymous) individuals, so we'd be shocked if this strange "concept" wasn't excluded from the final rules and from any serious future discussions. The WAM reduction should be modified (to 75 days), the illiquid bucket should be reduced but not eliminated (to 5%), and the retail and institutional liquidity buckets, which also were trashed heartily in letters, should be eliminated in favor of the ICI's 5%/20% daily/weekly standard bucket. A couple question marks, like the fate of "Second Tier" securities, remain. Below, we excerpt from another of the recent posts.
Invesco AIM's letter, from Head of Global Cash Management Lyman Missimer, says, "We believe that some modifications to the proposals are necessary, however, in order for cash managers to retain the necessary flexibility to satisfy their fiduciary obligation to manage the safety, liquidity and yield of their portfolios under ever changing market conditions, and to otherwise preserve the orderly functioning of short term credit markets. In some instances, we believe that a pragmatic extension of the compliance date of the proposed rules may be necessary to address significant technical and systems challenges required of fund companies for full implementation of this proposal."
AIM also comments, "We also disagree that funds should disclose the market-based pricing of held securities as we believe this could likely destabilize money market funds and short-term credit markets.... Lastly, we do not believe that obligating money market funds to disclose client concentration levels to the Commission on any regular basis would produce standardized cross industry data that can be utilized in any meaningful manner ... given the variability in how fund complexes classify clients or client relationships.... We believe the Commission has significantly underestimated the time and cost it would take to transition existing transfer agency and other ancillary information technology systems ... that support money market funds to systematically support a redemption request at an NAV of something other than $1.00."
Finally, they say, "Invesco Aim Cash Management absolutely opposes the notion of floating the NAV for money market funds.... We do not believe the speculative benefits of requiring money market funds to float their NAVs outweighs the risks to the short-term credit markets outlined above."
Note: Crane Data's Peter Crane will be attending Schwab IMPACT, a gathering of thousands of independent financial advisors, in San Diego this week. Crane will participate on a panel Tuesday entitled, "Perspectives on the Future of Money Funds", Tuesday at 12:30pm (PDT), which will also feature Schwab's Randy Merck, ICI's Paul Schott Stevens, Invesco's Martin Flanagan.
