Ahead of today's deadline for comment letters, one of the first real batches of feedback was posted to the "President's Working Group Report on Money Market Fund Reform (Request for Comment)" website. (See last week's News, "Money Fund University Adds Session on PWG Report Comments, Future" for more details.) The latest letters posted include: offerings from two broker-dealers opposing the floating NAV -- Jeffrey M. Auld, President and CEO, SagePoint Financial, Inc. and Arthur Tambaro, President & CEO, Royal Alliance Associates, New York, New York; one from a municipal investor, Ramon Yi, Senior Director, Finance, Port of Houston Authority; and, an alternative opinion from former money fund executive, John M. Winters, CFA, Hingham, Massachusetts.
Royal Alliance Associates' Tambaro writes, "For almost three decades, money market funds have provided individuals, companies and other organizations with a powerful tool for managing cash, while also providing a crucial source of funding for American business. As financial intermediaries dealing with the needs of retail investors, businesses, and non-profit institutions, we are deeply aware of the value that these clients derive from money market funds." (The other brokerage letter contains similar language.)
He continues, "While we support steps to improve the regulatory framework governing money market funds, we oppose measures that would fundamentally alter them. One such step would be to force money market funds, directly or indirectly, to abandon their stable per-share value. We urge the Securities and Exchange Commission and the Financial Stability Oversight Council not to take this path, and to reject any reform options that would impose floating net asset values on money market funds. For the investors whom we serve, the benefits of money market funds are clear: They provide a high degree of liquidity, diversification, and stability in principal value, along with a market-based yield."
The Port of Texas' Yi says, "I am pleased to provide comments on the President’s Working Group Report on Money Market Fund Reform. I believe that any mandates forcing money market funds to abandon their traditional, stable net asset value would have a deleterious effect on the U.S. economy and financial markets. With over 30 years of experience in treasury and finance, including managing billions of dollars in cash, investments and debt for several large public corporations, I would not be comfortable recommending investing corporate cash in money market instruments with a floating NAV that pose a greater risk of loss of principal."
Finally, Winters writes in his extended minority report, "The Report on Money Market Fund Reform by the PWG is well‐written and there seems to be a clear understanding by its authors of what is at stake. 'Without additional reforms to more fully mitigate the risk of a run spreading among MMFs, the actions to support the MMF industry that the U.S. government took beginning in 2008 may create an expectation for similar government support during future financial crises, and the resulting moral hazard may make crises in the MMF industry more frequent than the historical record would suggest.' (PWG Report p. 18). The PWG Report discusses a number of policy options and describes possible reactions to each. But it fails to make recommendations and does not assess the probability of the market reactions nor estimate the dollar magnitude associated with each. Without such critical analysis, the Report will serve only as 'background information' for the real analysis that now must be undertaken by the FSOC."
He adds, "I am a huge fan of MMFs and spent most of my career working in the industry in one way or another. Since the MMF's inception in the early 1970's, it has become clear to me that the original product structure has been overwhelmed by risks that have grown faster than industry assets. Consider the fact that it holds the promise of a stable transaction price of $1.00 per share while it has $2.8 trillion of one‐day liabilities mismatched against portfolio securities with maturities out as far as 397 days. The maturity, liquidity, credit risk associated with that mismatch is enormous and there is no official emergency liquidity facility, no reserves, no capital, and no access to committed capital."
