WASHINGTON — Twenty-two U.S. senators are urging Securities and Exchange Commission Chairman Mary Jo White to make sure municipal money market funds are exempted from proposed reforms, warning they will hurt state and local governments.
The SEC proposed last fall to move most MMFs to a floating net asset value from the current stable NAV of $1 per share. It also has proposed funds have liquidity fees and gates to discourage redemptions.
The proposals are aimed at preventing runs on MMFs such as the one that occurred during the financial crisis in 2008 when the Reserve Primary Fund "broke the buck" and led investors to pull more than $300 billion from prime money market funds.
Under the SEC's proposed changes to its rules, the floating NAV requirement would not apply to "retail" MMFs, defined as those funds holding U.S. government securities and federal agency securities that limit each shareholder's redemptions to $1 million per business day. But the senators — 11 Republicans, 10 Democrats and one Independent — told White in a letter that muni funds should not be a cause for the commission's concern.
"Municipal MMFs have extraordinary levels of liquidity, short maturities and high credit quality — just like Treasury and U.S. government funds," they said in the letter. "Moreover, municipal MMFs hold only about $270 billion of assets — a very small fraction of the $2.7 trillion MMF industry. They simply do not pose a systemic risk to the financial system."
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"We have heard directly and loudly from state and local officials in our states about these concerns," they told White.
Market groups and other members of Congress have also voiced concerns about the proposed reforms. Members of the House Financial Services Committee made similar comments prior to a hearing last fall, and groups such as the National Association of State Treasurers and the Investment Company Institute have also said that the stable NAV should stay.
NAST members have been concerned that local government investment pools could be damaged by the reforms. LGIPs operate in several states to help municipalities invest public funds safely and efficiently. They are designed to provide short-term investments for funds that are needed by governmental entities on a short-term basis. They operate like money market funds, but their clients are local governments. They are indirectly regulated by the SEC because the Governmental Accounting Standards Board mandates that MMF-like funds be governed by MMF rules.
Other prominent voices have spoken in favor of a floating NAV, however. The 12 presidents of the Federal Reserve system sent White a letter late last year supporting the floating NAV idea and urging the SEC to widen the reforms to include retail funds currently exempt under the proposal.
The SEC's comment period on the proposal ended months ago, but the commission has not yet taken action, either in approving the proposal or in amending it.
