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February 07, 2012 at 09:45 AM
The mutual fund industry has reacted with speed and fury to an SEC proposal to tighten regulation of money market funds.
Paul Schott Stevens, president of the fund industry group the Investment Company Institute, said in a statement released Tuesday that the proposed new regulations could cause “enormous” harm to investors and the economy.
The SEC is polishing off regulatory changes to increase capital requirements for fund companies, limit customers’ ability to withdraw all their funds immediately and allow funds’ net asset value to float (rather than maintain a fixed dollar value). Agency staff will soon submit the proposed changes to the SEC’s five commissioners, three of whom must give their approval in order to advance the proposal to a public comment stage.
Fidelity Investments, the largest manager of money market assets, has already sent a report to the SEC urging a retreat from the changes, and Federated Investors’ president and CEO J. Christopher Donohue is quoted in The Wall Street Journal saying of the SEC proposal: “The generosity of giving you the choice of which way to die is really not much of a choice.”
ICI’s Stevens (left) spelled out the regulatory “hat trick,” as he called it, of changes he said would “harm investors, damage financing for businesses and state and local governments, and jeopardize a still-fragile economic recovery.” Moving to a floating NAV and preventing investors from withdrawing all their assets at once — the proposal calls for a wait of 30 days before investors could redeem the final 5% of their funds — would diminish money market funds’ utility as cash management tools, he said.
“Compliance with redemption freezes will impose hundreds of millions of dollars in added costs on investors, funds, and financial intermediaries and impair features — like check writing, debit-card access, and sweep accounts — that investors demand,” he added. And he said the imposition of bank-like capital requirements, in combination with the other changes, would impose costs that will drive fund sponsors out of the industry, reducing competition.
