JPMAM Urges Incremental Change
J.P. Morgan Asset Management is just one of the many money fund managers sending in comment letters ahead of the SEC's April 12 deadline for its "Request for Comment on Potential Money Market Fund Reform Measures in President's Working Group Report." In their letter on, "Potential Money Market Fund Reform Measures in President's Working Group Report (File No. S7-01-21)" CEO John Donohue writes, "J.P. Morgan Asset Management is pleased to respond to the Securities and Exchange Commission's request for comment on potential money market fund reform measures set forth in the December 2020 Report of the President's Working Group on Financial Markets. JPMAM is one of the largest managers of MMFs, with over $710B in assets under management globally. In the US, we manage over $460B in MMFs, across government and treasury MMFs (~$360B), institutional prime MMFs (~$77B), retail prime MMFs (~$11B), and tax-exempt MMFs (~$12B). Like many other MMFs, JPMAM's institutional prime and, to a lesser extent, tax-exempt funds saw meaningful redemptions in March 2020 as a result of the financial market's reactions to the coronavirus pandemic and government efforts to combat it. We are therefore supportive of the SEC's efforts to consider potential policy measures to improve the resilience of MMFs and short-term funding markets in the United States. We have considered each of the options set forth in the PWG Report, as well as additional ideas. To aid in our evaluation of policy options, we also conducted an informal survey of our largest clients to understand their considerations for managing their MMF holdings during the March volatility." The letter continues, "We believe that a number of incremental changes to Rule 2a-7 under the Investment Company Act of 1940, building on the SEC's prior reforms to MMFs in 2010 and 2014, can substantially enhance the resilience of MMFs while preserving the important role they play as intermediators of short-term borrowers and lenders. Conversely, we are concerned that some of the more far-reaching options under consideration could make prime and tax-exempt MMFs undesirable to investors and/or not cost-effective for sponsors to offer, which could have knock-on impacts to the financial markets globally. Below we provide a perspective on the importance of MMFs to the US markets; review the impacts of previous MMF reforms; describe JPMAM's experiences during March 2020; summarize feedback received from our clients; and offer observations on other areas of the short-term markets that bear examination. We then suggest incremental changes to Rule 2a-7 to enhance the resilience of prime and tax-exempt MMFs. Our recommendations include: Remove the tie between a MMF's weekly liquid assets (WLA) and the obligation for a board to consider imposing a fee or gate; Impose corrective requirements when MMFs fall below 30 percent WLA, to incentivize MMFs to maintain at least 30 percent WLA in the ordinary course while making it easier for them to utilize the WLA buffer when market conditions dictate; and Require MMFs to develop detailed policies and procedures that identify the circumstances under which a board should implement redemption fees (i.e., a 'playbook'). Finally, we review the other options set forth in the PWG Report and explain why we do not support them." JPMAM adds, "As an investment option, prime MMFs serve as an alternative to bank deposits for cash investors who value the same-day liquidity, diversification, and returns these funds offer. Banks frequently position MMFs with deposit customers as a means to help manage their balance sheets more effectively. Providing an alternative to deposits is likely to be even more important following the expiration, on March 31, 2021, of temporary changes to the Federal Reserve's supplementary leverage ratio rule (SLR) made during the crisis. The temporary relief had made it easier for banks to absorb substantial deposit growth driven by unprecedented monetary and fiscal expansion. With its expiration, banks may need to turn away customer deposits, or retain earnings or issue securities to raise additional capital. Prime MMFs will play an important role in absorbing and redirecting these assets. If these assets migrated solely to Government MMFs, the modestly negative interest rates seen today in the markets for repurchase agreements and treasuries would become more pervasive, which would necessitate further Fed action to keep short-term markets liquid and rates in the desired band (and not negative)."
