Tuesday, September 22, 2009
Professor Gordon Suggests Retail and Institutional Investors Should be Treated Differently in MMFunds
Professor Jeffrey Gordon (Columbia) has filed a Comment Letter (Download Gordon SEC MMF Corr Comment Letter 091509) with the SEC in response to its proposal to reform money market funds. The SEC sought comment on proposed reforms that, among other things, would force money-market funds to have part of their portfolios made up of highly liquid investments, be restricted to owning only the highest-quality securities and reduce their exposure to long-term debt. Professor Gordon labels the proposals “quite modest.” Instead, he advocates a division between MMFs sold to retail investors and institutional MMFs sold to corporations, governments, and pension funds. The former would be covered by deposit insurance to ensure a fixed NAV. The latter, he said, should “give up the promise” of a fixed NAV and reduce the risk of a run on withdrawals since there would be no “buck” to be broken.