March 18, 2009

Panel recommends money market funds regulation

Mutual fund leaders announced today they are endorsing several recommendations to improve and increase oversight of money market funds. The Investment Company Institute is supporting proposals from the Money Market Working Group that call for new standards and regulations, strengthening funds' resiliency.

The Money Market Working Group is a panel of fund industry leaders established last November and headed by John J. Brennan, chairman of The Vanguard Group.

Among the recommendations, the Group says it would like to see - for the first time - imposed daily and weekly minimum liquidity requirements and require regular testing of the fund's individual portfolio holdings and shareholder base.

"The recommendations respond directly to weaknesses in current money market fund regulation, identify additional reforms that will improve the safety and oversight of money market funds, and will position responsible government agencies to oversee the orderly functioning of the money market more effectively," Brennan said in a prepared statement issued today.

According to the statement, the Money Market Working Group is also recommending "tightening the portfolio maturity limits currently applicable to money market funds and raising credit quality standards"

"The Board has given its strong approval to the reforms developed by the Money Market Working Group and deeply appreciates the Working Group's efforts," said John V. Murphy, ICI chairman and chairman of OppenheimerFunds Inc. "The Board also has called for prompt implementation of these improved practices across the industry, pending regulatory action. In light of the significance of these recommendations to fund investors, ICI will encourage the SEC to require funds choosing not to implement these recommendations to disclose that fact to their investors."

Other recommendations:

  • Raise the credit quality standards under which money market funds operate. This would be accomplished by requiring a "new products" or similar committee to review and approve new structures prior to investment, encouraging advisers to follow "best practices" for determining minimal credit risks, requiring advisers to designate the credit rating agencies their funds will follow to encourage competition among the rating agencies to achieve this designation, and prohibiting investments in "Second Tier Securities."
  • Address "client risk" by encouraging money market fund advisers to adopt "know your client" procedures and requiring them for the first time to disclose client concentrations and the potential risks, if any, posed by a fund with a strongly concentrated client base.
  • Enhance risk disclosure for investors and the market and require monthly website disclosure of a money market fund's portfolio holdings.
  • Assure that, when a money market fund proves unable to maintain a stable $1.00 NAV, all of its shareholders are treated fairly. For this purpose, a money market fund's board of directors would be authorized to temporarily suspend redemptions and purchases of fund shares under certain situations, and to permanently suspend redemptions for funds preparing to liquidate in order to ensure that all shareholders are treated fairly.
  • Enhance government oversight of the money market by developing a reporting regime so that regulators will have access to better information about all institutional investors in the money market, including money market funds, and encouraging the SEC staff to monitor higher-than-peer performance of money market funds.
  • Increase investor understanding of money market funds and address market confusion about money market participants that appear to be-but are not- money market funds.
Reprints Discuss this story
This is where the comments go.