WASHINGTON — The Securities and Exchange Commission will not pursue regulations aimed reducing the susceptibility of money market mutual funds to market runs, SEC chairman Mary Schapiro said in a statement issued Wednesday night.
Schapiro, who has long called for additional money market rules, said the SEC will not pursue new rules because of lack of support from three of the SEC's five commissioners. The proposal therefore cannot be published for public comment, she said.
Schapiro, an Independent, and Commissioner Elisse B. Walter, a Democrat, have pushed for the measures, but apparently could not gain the support of Commissioner Luis Aguilar, another Democrat, or Republican Commissioners Troy A. Paredes and Daniel M. Gallagher.
"There is no longer a need to formally call the matter to a vote at a public commission meeting," Schapiro said. "Other policy makers now have clarity that the SEC will not act to issue a money market fund reform proposal."
Schapiro noted that some commissioners suggested the SEC outline its regulations in a concept release instead of a proposal, but said that option "does not advance the discussion."
Still, she insisted reforms are still needed, but called on "other policy makers" to take charge. "I urge them to act with the same determination that the staff of the SEC has displayed over the past two years," she said.
Muni bond issuers strongly opposed additional money market regulations, saying investors have adequate protection under SEC rules passed in 2010. New rules could result in higher short-term borrowing costs for governments and fewer reliable short-term investment options for issuers, they warned.
The Investment Company Institute, the Government Finance Officers Association, the American Public Power Association, the National Association of Counties, the United States Conference of Mayors and others have submitted letters or testimony to the Senate Banking Committee criticizing Schapiro's plan.
Kathryn Hewitt, Treasurer of Harford County, MD and GFOA member who participated in numerous money marekt fund briefings and meetings on Capitol Hill and at the SEC, said Thursday that the state and local government community has worked hard to get the message out regarding the problems associated with the SEC's proposed proposal.
"Had the SEC moved forward with its plan, governments would likely have been forced to use other — riskier and more costly — short term investment products, in addition to possibly facing increased debt issuance costs since these funds are the major purchaser of short term munis, and their appetite for these bonds would have diminished," she said.
A paper released in June by Georgetown University professor James Angel estimated that money market funds hold 60% of state and local governments' short-term debt.
ICI also praised the SEC's action in a statement released Thursday.
Schapiro's announcement comes two months after Schapiro told the banking committee that she had directed SEC staffers to examine two regulatory reform options. One would require money markets to peg share prices to the value of underlying assets - in other words, requiring funds convert from a stable $1.00 net asset value to a "floating" NAV.
The other option would be let funds retain stable NAVs, but add capital buffers and, possibly, redemption restrictions.
Although the SEC tightened money market regulations in 2010, Schapiro said more oversight could prevent a repeat of events in September 2008, when the $62.5 billion Reserve Primary Fund's NAV fell below $1.
The federal government halted the run with a taxpayer-funded program, but Congress later banned the Treasury Department from repeating such bailouts.