SEC to Vote on Money Market Fund Reform: Will It Benefit Investors?
The SEC appears poised to release the long-awaited rules aimed at making the money-market mutual fund industry less susceptible to destabilizing investor runs.
According to a recent Bloomberg article, “The plan would require prime institutional funds to float the value of their share price, traditionally set at a stable $1, which makes them a popular place to park cash. It also would require funds to impose a 1 percent fee on redemptions and permit them to temporarily suspend withdrawals when liquidity drops below required levels.”
In comments to the SEC, CFA Institute recommends both a short- and long-term approach to reforming the industry to reduce the recognized systemic risks implications. Expressing a preference that the money market industry eventually adopt a floating net asset value valuation for all money market funds, the comment letter supports the SEC’s proposal to immediately adopt an approach that would (1) require institutional money market funds to use a floating NAV while suggesting that (2) retail and government money market funds be allowed to continue using a stable NAV, with important qualifications.
Recognizing the challenges in reconciling the need for immediate reform without unduly restricting investor options, CFA Institute believes this measured approach would guarantee important safeguards while ultimately moving investors toward a fair value accounting approach for these financial instruments.
For more on the investor perspective on this issue, review the following:
- CFA Institute Money Market Funds Survey Report providing views of both European and U.S. members.
- Money Market Fund Reform: Measures to Reduce Systemic Risk in the Investment Industry (Issue Brief)
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