ABA's Comment Supportive of MMFs
The American Bankers Association writes in its Comment on MMF Reform, "As we noted in response to the 2021 request for comments, banks and their affiliates interact with MMFs in many ways, including as facilitators of bank customer investments (e.g., sweep arrangements from fiduciary and non-fiduciary accounts), as sponsors of MMFs, as investors, and as issuers of certificates of deposit and commercial paper in which prime MMFs invest. While banks value greater stability and resilience for participants in the short-term funding markets to weather financial shocks, we urge the SEC to consider carefully any changes that may affect the availability of these funds to bank fiduciary and nonfiduciary accounts." They state, "The proposal intends to strengthen money market funds, as well increase disclosure, in a number of ways. Specifically, the proposal eliminates the liquidity fee and redemption gate mechanism in the rule in order to remove the 'first mover' advantage in anticipation of those triggers. In addition, institutional prime and tax-exempt funds would need to implement 'swing pricing' to internalize related costs on redeeming investors when there are net redemptions in a pricing period. The proposal would also double the daily liquid asset and weekly liquid asset minimum liquidity requirements, to increase the liquid assets available. In terms of expanded disclosures, the proposal would amend Forms N-MFP and N-CR with additional relevant information. Lastly, the proposal would require stable net asset value (NAV) funds, such as government money market funds, to switch to floating NAV in the rare situation of negative interest rates, and furthermore require any financial intermediary to be able to accommodate floating NAV transactions in order to invest on behalf of others." The ABA letter also says, "To address the rare potential for negative interest rates in the United States, the proposal would require stable NAV money market funds to switch to a floating NAV. To facilitate this requirement even if never implemented, the fund must determine whether a financial intermediary, such as a bank on behalf of its clients, has the capacity to redeem and sell interests in the fund on a floating NAV basis and further prohibit from investing any intermediary that cannot do so. Unfortunately, the proposal would prohibit outright the very reasonable alternative to managing negative interest rates of employing a 'reverse distribution mechanism.' The rationale for this prohibition is that retail investors would be confused by there being fewer shares in their account even though the two approaches result in equivalent financial outcomes for the investor." It adds, "ABA appreciates this opportunity to comment on the significant changes proffered in the SEC's money market reform proposal. We urge the SEC to allow government MMFs to decide, based on its determination of the needs and characteristics of its investors, whether reverse distribution mechanism or floating NAV is the most appropriate way to manage the effects of negative interest rates. While we support the removal of mandatory fees and gates, we urge the SEC to weigh the effect of a costly and complex swing pricing requirement on availability of these funds for investors."
