Wednesday, August 29, 2012
Unfortunately, it appears that proposals for reforming money market funds have generated not only constructive debate but considerable dissension among the SEC Commissioners. Commissioners Gallagher and Paredes issued a joint statement yesterday, stating they were "dismayed at SEC Chairman Schapiro's August 22 statement (SEC Commissioner Aguilar had previously issued a statement, for which Commissioners Gallagher and Paredes expressed their respect for his views):
...the Chairman’s statement creates the misimpression that three Commissioners — a majority of the Commission — are not concerned with, or are somehow dismissive of, the goal of strengthening money market funds. This is wholly inaccurate.
The truth is that we have carefully considered many alternatives, including the Chairman’s preferred alternatives of a “floating NAV” and a capital buffer coupled with a holdback restriction, and we are convinced that the Commission can do better. ...
Our decision not to support the Chairman’s proposal, based on the data and analysis currently available to us, has also been informed by our concern that neither of the Chairman’s restructuring alternatives would in fact achieve the goal of stemming a run on money market funds, particularly during a period of widespread financial crisis such as the nation experienced in 2008. ...
Commisioners Gallagher and Paredes go on to suggest several reforms for further consideration:
(i) empower money market fund boards to impose “gates” on redemptions; (ii) mandate enhanced disclosure about the risks of investing in money market funds; and (iii) conduct a searching inquiry into, and a critical analysis of, the issues raised by the questions we pose below.
It remains to be seen whether the Commission has the will to deal with this contentious issue further or whether, like other controversial and difficult reforms (see uniform fiduciary duty, proxy access) it is relegated to the back burner.