Wednesday, June 6, 2012

"What Good are your MMF Rules?," U.S. Congress asks SEC.


Author: David Schwartz J.D. CPA David Schwartz J.D. CPA

Per the fiscal year 2013 Financial Services and General Government Appropriations bill of the House Appropriations Committee, the SEC must perform an in-depth study on the effectiveness of the Commission's long standing rules, as well as the more recent money market regulatory reforms. In particular, Congress wants to know whether these rules help in providing liquidity to the capital and municipal markets and to what extent they promote and enhance money market fund stability, resiliency, and transparency.  This proposed legislation just adds to the ongoing discussion among US regulators, Congressional leaders, and international oversight bodies on the systematic risks still posed by money market funds.
The bill was released on Tuesday, June 5th, for consideration in subcommittee this week. Besides providing annual funding for the Treasury Department, the SEC, and several other independent agencies, the bill directs the SEC to take a hard look at money market funds.  

SEC. 633. No later than 90 days after the date of enactment of this Act, the Securities and Exchange Commission shall submit a report to the Committees on Appropriations, the House Committee on Financial Services,and the Senate Committee on Banking, Housing, and Urban Affairs that includes a detailed analysis of the money market fund industry and an analysis of the effectiveness of Rule 2a-7 (17 C.F.R. 270.2a-7), as amended by the Securities and Exchange Commission Release No.IC-29132 (February 23, 2010), to promote and enhance money market fund stability, resiliency, transparency, and to ensure the ability of money market funds to provide liquidity to the capital and municipal markets.
This Congressional interest in the welfare of the money market industry is not new.  Back in April, House Financial Services Committee Chairman Spencer Bachus and Vice Chairman Jeb Hensarling sent SEC Chairman, Mary Schapiro, a letter questioning the need for additional reforms, and requesting just the kind of study of the current state of money market regulations proposed in this week's General Government Appropriations bill.  

Notably, IOSCO recently published a consultation paper on global money market fund reforms as part of the FSB's five work streams on shadow banking.  The consultation paper acknowledges that some regulatory changes have already occurred globally with respect to money market funds, most notably in the US. IOSCO makes clear, however, that it still believes that a number of areas of risk remain, and that the status quo may not ensure the safety of money market funds or protect financial stability at large.

US regulators, the US House leadership, and international bodies like IOSCO seem to be at odds over the extent to which risks posed by money market funds have been controlled adequately post financial crisis.  There also seems to be great diversity of opinion among proponents of change as to whether reforms should be more regulatory or structural.  


Print