Investment Company Institute president and chief executive officer Paul Schott Stevens said Wednesday that ICI supports one federal proposal on money market fund reform, but strongly opposes the other.
Speaking at Crane Data’s Money Fund Symposium in Baltimore, Md., Stevens said his group supports a Securities and Exchange Commission proposal to impose redemption fees and gates to prevent panic runs on MMFs, but opposes moving to a floating the net asset value. The SEC introduced these options, which could be implemented separately or together or not at all, at an open meeting June 5.
MMFs currently operate with a stable NAV, at $1 per share. A floating NAV would prevent investors from being able to get all their money back in a panic withdrawal, as happened during the financial crisis in 2008, according to the SEC. Funds investing in U.S. government securities would be exempt, but municipal bond funds would be subject to the regulations unless they were designated as a retail fund. Retail funds would be exempt from the floating NAV requirement. The SEC defined retail funds as those that restrict investors to withdrawals of no more than $1 million per day.
Though SEC chairman Mary Jo White and commissioner Daniel Gallagher expressed support for the floating NAV, many market participants have come out against it.
“Let’s check the count against floating NAVs,” Stevens said. “They don’t address regulators’ goals. They eliminate key benefits to investors. They harm the economy. They increase systemic risk. And they carry immense costs and operational complications.”
Stevens said the liquidity fees and gates, which would force investors to pay a penalty if funds dropped to too low a level and would allow the fund managers to suspend redemptions, is a more promising option.
“Liquidity fees and gates precisely address the core problem that regulators express greatest concern about: heavy redemption pressures in periods of market turmoil,” Stevens said.
ICI will file a comment letter with the SEC in September, Stevens said.