MMF or WWF?June 06, 2013 Posted by: Joe Morgan, CFA
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates.
Yesterday, the SEC announced proposed changes to the money market fund (MMF) industry, specifically designed to address the challenges of 2008*.
These alterations have been through the wringer, failing to reach the voting stage last year within the SEC which lead the newly created FSOC (a combination of 10 government leaders including the Treasury Secretary, Fed Chairman, FDIC chair and others) to re-propose such changes back to the SEC. By law, the FSOC actually has no power to do anything except propose changes and in this case they proposed changes to the SEC which had already been suggested and rejected.
Anyone remember "double-secret probation"?
Getting to the heart of the matter, yesterday's proposals included an out for the industry. One of the options is to retain the $1 NAV but impose a redemption fee once certain holdings decline to 15 percent of the fund. Current regulations require this bucket of assets to remain higher than 30 percent so it seems the fee would be imposed after the fund is already in wind-down mode. Additionally, the fund may retain cash equivalent status for accounting purposes.
This is effectively no change from current rules but allows the SEC and FSOC to tout victory over the industry at the same time - a typical Washington/private sector "win-win" that accomplishes little in reality after great drama over the last five years.
If all of this reads like the WWF (or as the kids now call it, the WWE) I am not too surprised. A quick search reveals this synopsis of a recent event:
The Shield ended up winning when Ambrose pinned Kingston, but Team Hell No came down the ramp and threw Ambrose and Rollins back into the ring, where they were subsequently met with an RKO and Brogue Kick to finish the show.What??
*In 2010, the SEC overhauled the same rules targeting increased liquidity rules. Many have questioned whether...Read More