Views on the integrity of global capital markets
14 July 2014

SEC to Vote on Money Market Fund Reform: Will It Benefit Investors?

Posted In: Systemic Risk, US SEC
SEC.jpeg

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:


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Photo credit: ©iStockphoto.com/qingwa

About the Author(s)
Crystal Detamore

Crystal Detamore is a communications director at CFA Institute and a former columnist for Entrepreneur magazine.

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