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In a comment letter filed with the Securities and Exchange Commission, the Asset Management Group (AMG) of the Securities Industry and Financial Markets Association (SIFMA) expressed its strong support for the SEC’s goals of increasing the resilience of money market mutual funds to economic stresses, reducing the risks of significant redemptions on the funds, facilitating the orderly liquidation of a money market fund that breaks the dollar and liquidates, and improving the SEC’s oversight of money market mutual funds. The letter was filed in response to proposals from the SEC to enhance Rule 2a-7, which provides limits on the risk that money market mutual funds may take.
“SIFMA’s Asset Management Group is focused on improving the operations, efficiency, and trust in capital markets, enhancing regulatory effectiveness and addressing the ‘nuts and bolts’ of the buy side’s operations,” said Joseph W. Sack, managing director of SIFMA’s Asset Management Group. “We generally support the Commission’s proposals, which we expect will help achieve these goals, maintain investors’ confidence and further the soundness of the approximately $3.6 trillion in money market mutual funds which are an integral part of financing for federal, state and local government entities as well as corporations and financial institutions.”
Specifically, SIFMA’s AMG notes that the proposed enhancements to risk-limiting conditions of Rule 2a-7 and liquidity requirements would make it less likely that a money market fund will break the dollar; the proposed liquidity requirements would decrease the risk of unexpected redemptions in a fund and lessen the impact of those redemptions; the proposals dealing with Board actions upon exigent circumstances would protect shareholders by improving the liquidation process; and the proposed reporting requirements would enable the Commission to better achieve its oversight mandate.
While SIFMA is generally supportive of the Commission's proposal to impose a minimum percentage liquidity requirement, a majority of the members of the AMG strongly oppose requiring different cash minimums for retail and institutional funds. At the same time, other members of the AMG strongly advocate differing cash requirements for retail and institutional funds based on their view of the differing liquidity needs of retail and institutional shareholders.
SIFMA’s AMG’s positions on the proposals include the following:
- Do not require money market mutual funds to adopt a variable or floating net asset value (NAV), since shareholders want to invest in stable NAV money market mutual funds. SIFMA expects that if the NAV floats, many shareholders would redeem out of money market mutual funds in favor of other products, some of which may be less carefully regulated, and therefore pose more systemic risk.
- Add to Rule 2a-7 a minimum requirement for holdings of cash and securities convertible to cash. Liquidity is of paramount importance to money market mutual funds. If a money market fund fails to maintain adequate liquidity and as a result cannot honor redemptions timely, the difficulties may trigger rapid redemptions in other money funds and discredit the entire money market mutual fund sector.
- Do not require money market mutual funds to provide shareholders a choice between liquidity and principal preservation upon fund liquidation. Providing shareholders the choice between two approaches to asset liquidation would be detrimental as it would prevent the investment adviser from considering the best interests of all shareholders based on the securities held, and conditions prevailing, at the time of liquidation.
- Do not eliminate credit ratings requirement from Rule 2a-7. The Rule should continue to include the important shareholder protection that each holding meet specified ratings standards.
- Clarify that procedures to identify risk characteristics of shareholders apply only to shareholders whose redemption in full could threaten fund liquidity. It is impractical for a fund to monitor the redemption risk of every shareholder’s account, given that there may be thousands of shareholders, and many accounts are small.
The full comment letter is available at the following link: http://www.theassetmanager.com/docs/CommentLetter-ElizabethMurphy.pdf
SIFMA’s AMG represents U.S. asset management firms whose combined assets under management exceed $20 trillion. The clients of AMG member firms include state and local pension funds, universities, and individuals saving for retirement.
