US MMFs Update:Push Against Refrm Continues;SEC Effort Slowed
WASHINGHTON (MNI) - Opponents of a sweeping reform of money market funds contemplated by the Securities and Exchange Commission continue their efforts to argue against the reform, and so far, they have at least succeeded in slowing the regulator's momentum.
A wide array of arguments has been used by the industry, including one consisting in praising the SEC for the success of its 2010 regulatory changes, which as a result are deemed sufficient.
Most arguments, however, challenge the SEC on many grounds, including the threat the contemplated reforms would pose to the industry's survival and the health of the economy as a whole.
The latest charge through comment letters to the SEC -- the money marker funds' regulator -- came on August 7 from Dreyfus Corporation.
In his letter, Dreyfus President Charles Cardona challenged the accuracy of SEC Chairman Mary Schapiro's argument during a congressional testimony in which she said MMF sponsors "have voluntarily provided support to money market mutual funds on more than 300 occasions since they were first offered in the 1970s." Mutual funds are established by sponsors, typically the fund management company.
"The methodology for the tabulation includes (and without any related analytics) every money fund that obtained no-action relief from the Staff of the Division of Investment Management in 2008," Cardona said. He referred to so-called 'no-action' letters from the SEC relieving from prohibitions related to sponsor-support actions.
That means "The methodology included in its tabulation many money funds that neither needed nor received sponsor support," the letter said.
"While the Commission has pursued reform proposals in the name of improving 'the susceptibility of money funds to destabilizing runs,' we believe the need for reform should be assessed in light of those past instances of actual net asset value distress for money funds, and the market, economic, or structural conditions that might have given rise to those circumstances," Cardona argued.
But the most effective challenge to the SEC's reform effort is likely a legal one, on the ground of cost-benefit analysis. One that could explain the slowdown in the Commission's reform process.
On November 7, SEC Chairman Schapiro said she was looking "forward to making substantial progress on our money market fund reform initiative in the coming months so that we can issue a proposal in very short order. We cannot let this issue linger."
Clearly, nine months can be qualified as more than "a few," showing lobbying efforts have yielded some success.
"It's safe to say that all the rulemakings at the SEC are very heavily influenced by their concerns over cost-benefit analysis and fears that any new rules will be challenged in court on those grounds," said Steve Hall, Securities Specialist at Better Markets, a nonprofit organization promoting public interest in financial reform.
"MMF reforms are no exception," he told MNI.
"In fact, given the divided views on the subject and the importance of the issue to industry, potential challenges to MMF reforms on CBA grounds are probably a great concern for the SEC."
For an agency filled with lawyers, taking the legal threat seriously is no surprise.
However, the slow action could also be reflecting the difficulty among commissioners to come to an agreement on the MMF reform proposal.
Three of them have publicly voiced their opposition. That leaves the chair and Commissioner Elisse Walter in the minority.
And maybe Schapiro might have proved too "optimistic" in late June when she expected commissioners to eventually agree to submit the proposals for comment.
Still, Schapiro maintains MMFs remain suceptible to runs and need structural changes, a view shared by Sheila Bair, former chair of the Federal Deposit Insurance Corp. and current chair of the Systemic Risk Council, who even showed impatience in the SEC's inaction.
"The Systemic Risk Council today calls for prompt and decisive action to curb systemic risks posed by money market mutual funds," she said in a statement.
"In the event the SEC fails to act promptly on these measures, we believe that the Financial Stability Oversight Council (FSOC) should use its powers under the Dodd-Frank law to move forward with reforms to protect taxpayers against the risk of a need for bailouts in the future," she added.
** MNI Washington Bureau: 202-371-2121 **