We learned from attorneys at both Dechert and Stradley Ronon that the SEC has scheduled a meeting to discuss (and presumably vote on) Money Market Fund Reform, next Wednesday, July 12 at 10am. The "Sunshine Act Notice" says, "Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Pub. L. 94-409, that the Securities and Exchange Commission will hold an Open Meeting on Wednesday, July 12, 2023 at 10:00 a.m.... The meeting will be webcast on the Commission's website at www.sec.gov.... The Commission will consider whether to adopt amendments to certain rules that govern money market funds and related form amendments. The Commission will also consider whether to adopt amendments to Form PF to revise reporting requirements for large liquidity fund advisers, as well as certain technical amendments to other forms. The Commission will consider whether to propose amendments to the broker-dealer customer protection rule to require certain broker-dealers to compute their customer and broker-dealer reserve deposit requirements daily rather than weekly."
Next week's "Open Meeting Agenda" lists, "Item 1: Money Market Fund Reform; Form PF Reporting Requirements for Large Liquidity Fund Advisers; Technical Amendments to Form N-CSR and Form N-1A. Office: Division of Investment Management. Staff: William A. Birdthistle, Sarah ten Siethoff, Brian M. Johnson, Angela Mokodean, Blair Burnett, Christian Corkery, and David Driscoll."
In other news, we've been writing over the past week about our Money Fund Symposium conference, which took place 2 weeks ago in Atlanta. (See our June 29 News, "Highlights of Money Fund Symposium: Invesco's Brignac, Wong Keynote," and our July 3 News, "More Symposium Highlights: Regulations & Money Fund Reforms Coming.") Today, we quote from the segment, "Major Money Fund Issues 2023," which included Pete Henshaw from Dreyfus, Linda Klingman from Charles Schwab Investment Management and Dan LaRocco from Northern Trust Asset Management. (Note: Conference materials are available in our "Money Fund Symposium 2023 Download Center.")
Klingman comments, "I think we'll pretty much deal with what happens when it comes. We're in a little bit of a different situation. We have a retail customer base. [S]wing pricing, primarily if adopted as presently proposed, will really apply to institutional funds. So unless it's taken broadly to all mutual funds, swing pricing won't so much apply to us. However, ... I think that swing pricing will be a little confusing for investors.... So I think there's going to be a lot of education that's going be needed to explain how it's applied and who it's applied to."
She continues, "I think that it would be a lot easier for them to understand redemption fees. So I think we would support having some sort of a fee imposed, versus swing pricing. Fees and gates, I think that makes sense to eliminate those. That bright line attached to the fees and gates, I think we've seen that that didn't really work so well. So, I think that that was a good change. As far as negative rates, it's going to be impactful on intermediaries and I think on some sweep funds, that's a challenge."
On "Liquidity requirements," Klingman says, "I think we can deal with those. We're already running high levels of liquidity. Of course, that's kind of situationally dependent. But you know, that is something that we can get behind. The one thing that I think wasn't really mentioned was the timeline for implementation -- it's pretty short. I think 6 to 12 months is what was proposed on most of those items.... That's a really quick turnaround if that's the case. So, I would say that's one of the things that we would hope would have a little bit longer timeline."
Henshaw tells us, "I was encouraged by the robust debate that seems to still exist back and forth, particularly around comment letters, hearing that there are still many comment letters going back and forth and explanations on the challenges around swing pricing. What I really would just add to that is again, ... it would be extremely challenging to implement and ultimately unwelcome to investors.... The bright line between WLA and fees and gates, that's really what drove the behavior of certain investors as they saw weekly liquidity fall closer to that 30% threshold. So, ultimately, we think that's the reform [that's needed]."
LaRocco states, "I've been in fewer project planning meetings that I'd otherwise have been in if we were still in the institutional prime space. But it's clearly something we continue to watch. The last panel did a great job of laying out where the impact will be around negative rates with respect to intermediaries, and Pete made some great comments around daily and weekly liquid assets, and we can handle that. The big concern is that there might be some drag on yield in some interest rate environments."
He also says, "One thing that we're watching [is] recommendations around the enhancements to Form N-MFP, in particular the more frequent disclosure of greater than 5% holders. We take a slightly different view there, thinking that that information should only [be] going to the staff of the Commission rather than the public. We would hate to have one of our clients have their name inadvertently given up." (For more on the Proposed SEC Reforms, see our Dec. 16, 2021 News, "SEC Proposes MMF Reforms: More Liquidity, No Gates/Fees, Swing Pricing.")
Asked about the big asset inflows of 2023, Klingman response, "So we've had substantial growth this year. I think at the end of 2022, we had I think about $280 billion or so. We're now close to $390 billion just over the span of about four or five months. Most of the growth really has been organic and net new assets.... We really saw the dollars and the cash coming in when the Fed was [hiking] aggressively, 75 basis points at a clip, and increasing interest rates at a rapid pace. I would say the velocity has probably slowed a little bit, but we're still getting assets.... As far as the growth in prime, I think it's the yield differential in large part.... I [also] think it was just ... working with our clients to do the right thing for them and their liquidity needs, and to be able to secure a little bit higher yield in this environment."
Finally, LaRocco says, "I think there's plenty of evidence to support that it's coming out of bank deposits, whether that's aggregate AUM levels or aggregate deposit [numbers].... It seems like, when you talk to clients, there was a shift in behavior in March. We talked about it a little bit in Boston at Crane Bond [Fund Symposium] back in March. There is concern around what the health of those [bank] balance sheets look like. The longer that lingers, the higher the hurdle to reversing that trend.... The trend has slowed but the flows are still coming in. Reversing it is not just as easy as having a higher deposit beta and catching up on the yield.... I think there's a pretty solid consensus that inflows will continue."
