Systemic Risk Council
September 16, 2013
The Systemic Risk Council is writing to recommend that the Commission strengthen its proposed money market fund reforms and put in place a final rule that will fully address the destabilizing risks created by the stable NAV accounting fiction and so-called “penny rounding”.
As we have noted previously, the SRC believes prompt and decisive action is needed to curb systemic risks posed by money market funds. When the Reserve Primary Fund “broke the buck” in 2008, extraordinary actions were required to back-stop and calm investors in money market funds and protect the short-term lending markets. While we commend the Commission for overcoming significant industry pressure aimed at derailing this essential reform, the two primary options are not sufficient to address these risks. The first (limited floating NAV) option will create a host of gaming and arbitrage opportunities and the second (gates and fees option) could make matters worse.
A much better approach would be to require a floating NAV for all money market mutual funds. This is the same, simple, regulatory framework that applies to all other mutual funds: a framework that the SEC has implemented successfully (and without systemic risk or taxpayer bailouts) since 1940.
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