Despite the deluge of comments opposing the Securities and Exchange Commission’s plans to soon issue a proposed rule to further reform money market funds, SEC Chairman Mary Schapiro insisted Thursday that the funds still have “structural flaws” that must be addressed.
“While many say [the SEC’s] 2010 reforms did the trick — and no more reform is needed — I disagree,” Schapiro said at the Society of American Business Editors and Writers (SABEW) Annual Convention in Denver. “The fact is that those reforms have not addressed the structural flaws in the product. Investors still have incentives to run from money market funds at the first sign of a problem.”
After the Reserve Fund broke the buck, the SEC, in 2010, adopted new rules that imposed robust liquidity requirements on money market funds and also required higher-quality credit, shorter maturity limits, and periodic stress tests, moves that Schapiro said made “money market fund portfolios stronger and more resilient.”
But, Schapiro continued, “when [the SEC] passed these reforms, I clearly stated that we needed to do more — that those reforms were just a first step. Because, despite changes in the assets they hold, money market funds remain susceptible to a sudden deterioration in quality of holdings and consequently, remain susceptible to runs.”
The next steps in money market fund reform, Schapiro reiterated, are either float the net asset value, so that a money market fund’s value goes up and down like any other mutual fund, or impose capital requirements, combined with limitations or fees on redemptions.
“These proposals are designed to, respectively, desensitize investors to the occasional drop in value or make it less likely that the funds will not be able to absorb a loss and cause a run,” she said.