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SIFMA today announced it has submitted comments to the Securities and Exchange Commission (SEC) regarding proposed changes for money market funds (MMFs). The comment letter was submitted jointly by SIFMA’s Asset Management Group and Private Client Group.
SIFMA supports the SEC’s goals of further enhancing the resiliency of MMFs while at the same time preserving their important benefits for investors, government bodies, and corporate entities. MMFs provide both retail and institutional investors with an attractive option for cash investing and serve as an essential source of financing for state and local governments as well as corporate entities. SIFMA continues to believe that the SEC is the regulator that is best positioned to implement any new changes on these funds. SIFMA remains concerned that some elements of the SEC’s proposed changes would alter certain indispensable characteristics of MMFs that make them attractive to shareholders, thereby endangering the viability of money market funds as an investment option and as a vital element of capital formation and credit availability.
In the letter, SIFMA urges the SEC not to impose both the floating NAV and the liquidity fee and redemption gate proposals together on any type of MMF. A MMF subject to both fundamental proposed changes is not a viable product.
“Subjecting money market funds to both proposed changes would eliminate the benefits of these relatively safe and highly liquid products and leave all investors with fewer choices for cash investing,” said Timothy Cameron, managing director and head of SIFMA’s Asset Management Group. “As a result, investors would be forced to seek less effective investment options, while corporations and financial institutions would find it harder to access the short-term funding they need to carry out their daily operations, pay their employees and spur the economic growth that creates jobs.”
SIFMA supports the SEC’s proposal to limit the proposed changes to only certain types of funds, such as the proposal to apply a floating NAV only to institutional prime MMFs; however, the letter offers alternative ways to determine whether a MMF is institutional or retail. Further, SIFMA members believe municipal MMFs should be explicitly exempted from further changes, as these funds have not shown susceptibility to destabilizing runs and are held primarily by retail investors.
SIFMA also provides comments on specific elements of each proposed change including the following points: (a) if the liquidity fee and redemption gate option is adopted, SIFMA believes the SEC should reduce the initial default level of the liquidity fee to 100 basis points, and (b) if the floating NAV option is adopted, basis point rounding should be eliminated. In either case, SIFMA believes that the implementation period should be lengthened. SIFMA’s letter also makes recommendations on clarifying and amending certain disclosure, diversification, and review and stress test requirements.
Many of SIFMA’s recommendations are based on feedback received from a survey it conducted of member firms, including member predictions of implementation and operational burdens. The survey highlights several important concerns with the proposals, including that a large percentage of MMF distributors (71% of respondents) would not make the investment to support cash management vehicles (sweeps) that use floating NAV money market funds due to the operational challenges. Further, 96% of MMF asset managers and distributors that responded to the survey do not anticipate customer demand sufficient to build this infrastructure, though some may offer it anyway if the change is adopted. As a result, many MMF distributors would not offer floating NAV products for cash management vehicles and instead offer bank deposits and Government Money Market Funds as alternatives, materially limiting investor choice.
SIFMA’s letter can be found here: http://www.sifma.org/issues/item.aspx?id=8589945190
