The New York Times, in an article entitled, "S.E.C. Calls Off Vote on Fund Regulation", was the first to alert us of the failure of the SEC to issue a new money fund regulation proposal. It says, "Attempts to make sweeping changes to a popular type of mutual fund that played a destabilizing role in the 2008 financial crisis have been derailed. The chairwoman of the Securities and Exchange Commission, Mary L. Schapiro, had wanted to bring her vision for regulating money-market mutual funds to a vote, as early as next week, but two of the five members of the commission opposed it. Luis A. Aguilar, the commissioner seen as the swing vote, told The New York Times on Wednesday that he would feel comfortable voting only after significant further study of the industry and the limited regulations that were adopted in 2010." (See the full `SEC Statement from Mary Schapiro here.)
A "Statement of SEC Chairman Mary L. Schapiro on Money Market Fund Reform" released to Reuters says, "Three Commissioners, constituting a majority of the Commission, have informed me that they will not support a staff proposal to reform the structure of money market funds. The proposed structural reforms were intended to reduce their susceptibility to runs, protect retail investors and lessen the need for future taxpayer bailouts. I -- together with many other regulators and commentators from both political parties and various political philosophies -- consider the structural reform of money markets one of the pieces of unfinished business from the financial crisis."
It continued, "While as Commissioners, we each have our own views about the need to bolster money market funds, a proposal would have given the public the chance to weigh in with their views as well. However, because three Commissioners have now stated that they will not support the proposal and that it therefore cannot be published for public comment, there is no longer a need to formally call the matter to a vote at a public Commission meeting. Some Commissioners have instead suggested a concept release. We have been engaging for two and a half years on structural reform of money market funds. A concept release at this point does not advance the discussion. The public needs concrete proposals to react to."
Schapiro adds, "The declaration by the three Commissioners that they will not vote to propose reform now provides the needed clarity for other policymakers as they consider ways to address the systemic risks posed by money market funds. I urge them to act with the same determination that the staff of the SEC has displayed over the past two years."
The Times reported Wednesday night, "Informed of Mr. Aguilar's comments, Ms. Schapiro said in a statement Wednesday evening that she was calling off the vote. She commented to the Times, "The declaration by the three commissioners that they will not vote to propose reform now provides the needed clarity for other policy makers as they consider ways to address the systemic risks posed by money market funds."
The piece adds, "The Federal Reserve and the Treasury Department, which support Ms. Schapiro's plan, had anticipated that the financial industry might succeed in scuttling any new regulations. They have discussed the possibility of using new powers to move regulation of money-market funds to the Federal Reserve, according to people with knowledge of their thinking."
The article also says, "Money-market funds, which until the financial crisis had been considered a dull, low-return corner of the markets, are at the center of one of the most intense lobbying battles in recent years over financial reform. The nation's top financial regulators have been proclaiming their support for new regulations of the funds and fund companies. The companies, in turn, have enlisted a chorus of supporters from the U.S. Chamber of Commerce to 105 House members and 10 state treasurers."
It adds, "Mr. Aguilar said in an interview Wednesday afternoon that the S.E.C. staff had not adequately studied the issue before pushing for a vote." He told the Times, "There's a lot that we know we don't know.... It would make sense for us to get a handle on those before we do a proposal."
Finally, the Times says, "Another commissioner who previously stated his opposition to Ms. Shapiro's proposal, Dan Gallagher, said on Wednesday that Ms. Schapiro and the S.E.C. staff had been unwilling to consider alternatives that he and others had presented. The blow to an overhaul is a significant victory for the financial companies that have lobbied hard against them."
