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SEC’s Plaze Defends Need for Money-Market Fund Reforms

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As the Senate Banking Committee gears up to grill Securities and Exchange Commission Chairwoman Mary Schapiro on Thursday on the agency’s controversial proposed reforms to money-market funds, Robert Plaze, deputy director of the SEC’s Division of Investment Management, defended on Tuesday the need to move ahead with a money-market fund revamp.

“We are working hard to develop proposals that would address the weaknesses in money-market funds and make sure they are around for a long time,” Plaze told mutual fund directors at their annual policy conference in Washington. Money-market fund reform “is one of the areas of unfinished businesses” leftover from the 2008 financial crisis, he said.

In comments to reporters after his remarks, Plaze said that “there is a still a contagion risk in money-market funds,” and that the funds’ “exposure to Europe is something to worry about.”

The SEC has proposed three areas of reform: shifting to a floating net asset value (NAV), establishing capital buffers and imposing redemption restrictions.

Ray Schoen, an analyst with Washington Analysis, says he sees the SEC likely issuing a money-market fund proposal this summer “that is far less onerous for money funds than originally feared (likely focusing on capital buffers).” However, he adds, “we see it as unlikely that the SEC will be able to form a consensus on a final rule anytime soon.”

Instead, Schoen says, “we see the Financial Stability Oversight Council (FSOC) as eventually establishing new regulations and requirements for money funds as part of the nonbank SIFI regime,” referring to systemically important financial institutions.

Plaze also said that once the SEC is done fulfilling its requirements under the Dodd-Frank Act, which should be within the next year, the agency will move to reforms of mutual fund marketing and distribution fees under Rule 12b-1.

While the SEC visited such reforms a few years ago, any new reforms would have to consider the fact that mutual funds now have a new competitor, exchange-traded funds (ETFs), he said.


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