New York, NY. Mary L. Schapiro, Chairman of the U.S. Securities and Exchange Commission (SEC) took to the stage at the Securities Industry and Financial Markets Association’s (SIFMA) annual conference on Novemeber 7 to discuss what some in the industry would view as a rather mundane and innocuous subject; money market funds.
The funds, relatively safe, low risk, low return investments that seek to earn shareholders interest while maintaining a net asset value of $1 per share are short-term securities that represent high-quality, liquid debt and monetary instruments. Schapiro said that the $2.6 trillion industry has vast short comings in the short-term credit markets and they need reform in order to complement general reforms made in the market place.
“Money market funds exacerbated the financial breakdown,” Schapiro said. “We need protection without over protecting.” On September 16, 2008, Reserve Primary Fund, a prominent money market fund “broke the buck” by lowering its share price to under $1 due to exposure to Lehman Brothers debt securities. This triggered investor demands of a return of funds which in turn, caused multiple other funds to freeze.
Among some of the reforms that Schapiro believed should be put in place in order to mitigate that chances of this happening in the future are, instating a capital buffer, shortened maturity, and heightened liquidity.