Senator Toomey Blasts MMF Reforms
Among the 64 "Comments on Money Market Fund Reform" submitted to the SEC, just one comes from a member of Congress. Pennsylvania Republican Senator Pat Toomey, head of the Senate Committee on Banking, Housing, and Urban Affairs, writes to SEC Chair Gary Gensler in his post, "Money market mutual funds ('MMFs') are a valuable investment option for retail investors, an essential cash management tool for institutional investors, and a vital source of funding for governments and corporations. As you stated during your confirmation process, regulations should 'ensure access to investors' for MMFs 'while also ensuring stability in our financial system.' I support the proposed removal of the arbitrary threshold linking 30% weekly liquid assets ('WLA') to the imposition of fees and gates ('fees and gates linkage'). However, the proposed requirements for swing pricing, enhanced liquidity risk, and adoption of policies for negative interest rates are not justified. Instead, the Securities and Exchange Commission ('SEC') should allow all types of MMFs to adopt measures the funds think best ensure their resiliency, including a stable Net Asset Value ('NAV').... The SEC should repeal the 30% WLA fees and gates linkage because the COVID-19-related market disruptions in March 2020 showed that this requirement is a flaw in the MMF regulatory regime. The March 2020 events do not justify any further costly and prescriptive MMF regulations. Any insistence otherwise misinterprets the March 2020 events so severely that issuing a final rule by the SEC under this pretense may be arbitrary and capricious. MMFs were not the principal cause of pressure on the short-term funding markets in March 2020. These market disruptions primarily came from the unprecedented COVID-19 pandemic and government-imposed business shutdown orders." He explains, "Rather than narrowly prescribing how MMFs must operate to remain resilient during market disruptions, the SEC should consider broadly authorizing MMFs to determine how to ensure their funds' resiliency. An MMF could appropriately tailor measures based on fund-specific factors, such as its investor base, asset mix, and how it is distributed. As Commissioner Hester Peirce noted, this regulatory approach 'would allow for market choice, enable us to see what works, and make the financial system more resilient by diminishing the likelihood that problems at one money market fund would spill over to other funds, which in turn might reduce the urge of those in government to rush in with industry-wide rescues.' In other words, it would reduce systemic regulatory risk." Toomey tells us, "This flexible approach must allow all funds to adopt a stable NAV. The U.S. economy faces sustained high inflation and will see the money supply decrease to combat this inflation. Given these conditions, the need for a product that allows investors to obtain a higher return on investment while facilitating the provision of much-needed capital to municipalities and corporations is as vital as ever. Allowing MMFs to again adopt a stable NAV would restore an essential feature of their use as a cash management tool and level the playing field for MMFs investing in private companies and municipalities." He adds, "Furthermore, the SEC and other financial regulators should consider to what extent the market disruptions in March 2020 stemmed from factors unrelated to MMF regulations and how to address these factors. As ICI has noted, MMFs 'are just one participant in the short-term funding markets,' and even the elimination of MMFs 'would not make these markets more resilient, and the short-term funding markets will continue to be a source of stress to the financial system.'"
