Treasurers React Strongly to PWG’s MMF Reform Options, Finds ICD

Institutional Cash Distributors (ICD), an independent money market fund (MMF) portal, conducted a client survey on the proposed MMF reform options presented by President’s Working Group’s (PWG) report. The ICD survey findings revealed that a majority of respondents are in favour of a two-tiered system with enhanced protection for stable net asset value (NAV) funds. This would allow investors to select the types of MMFs that best balance their appetite for risk and their preference for yield.

The majority of respondents were also supportive of a private emergency liquidity facility and some form of insurance for MMF shareholders. The other reform options were met with scepticism, with the most resounding opposition directed against floating NAVs.

“The MMF industry has functioned almost flawlessly for more than 40 years and none of the reform proposals would have prevented the effects of the run that occurred in September 2008,” said Ryan Seghesio, chief financial officer (CFO) and treasurer of California Independent System Operator (ISO). “Investors understand the risk despite the MMF industry’s stellar performance. Reports like these only continue to create false safety nets that do more harm to investors than good.”

Conducted in response to the 3 November 2010 US Securities and Exchange Commission (SEC) request for public comment on the regulatory options presented by the PWG on Financial Markets’ study of possible MMF reforms, the survey provided a platform for ICD’s clients to voice their opinions from the investor side of the marketplace.

The key findings from the survey include:

  • The reform option that received the most favourable response was the ‘two-tiered system with enhanced protection for stable NAV funds, which garnered 44% agreement and 26% disagreement. When asked which proposal would be the most helpful, the highest percentage (28%) of respondents selected this option.
  • Floating NAV reform elicited the strongest negative response, with 62% of survey takers disagreeing with the reform option and only 22% agreeing. When asked separately what was the least helpful option an overwhelming 44% selected floating NAV. The survey’s second least helpful reform option, mandatory redemptions, received only 20% of the respondents’ votes.
  • The ‘mandatory redemptions in kind’ option was received poorly with 54% respondents disagreeing and 22% agreeing.
  • Respondents reacted strongly against ‘special purpose banks’, with 60% disagreeing and only 10% agreeing.
  • The ‘private emergency liquidity facility’ option was well received with 36% agreeing and 18% disagreeing.
  • Respondents were not in favour of a ‘two-tiered system with stable NAV reserved for retail investors ‘, with 48% disagreeing and 22% agreeing.
  • Respondents were slightly in favour of ‘insurance for MMFs’, with 38% agreeing and 34% disagreeing.
  • The ‘enhanced restraints on unregulated MMF substitutes’ was nominally rejected with 30% disagreeing and 24% agreeing.

Peter Campagna, treasurer of Maxim Integrated Products, said: “I am concerned that the proposed government regulation of MMF’s will go too far, with a rationale that any investor losses are unacceptable. But investors who cannot tolerate losses can stick with MMF’s that invest only in US government securities or stay with FDIC [Federal Deposit Insurance Corporation] insured accounts with regulated banks. Investors need alternatives to those ultra-safe investments, and MMF funds have provided that alternative, with a near perfect track record since their inception almost half a century ago.”

The findings are based on responses from ICD’s clients, with more than 50 corporate treasury respondents taking part. The firm’s client base includes 26 of the 2010 Fortune 500 companies, eight of which are in the 2010 Fortune 100.

Jeff Jellison, chief executive officer (CEO) of ICD North America, said: “The SEC has worked productively with the private sector to bring about important gains in making MMFs more secure, specifically the changes in May of 2010 that increased fund liquidity, shortened the weighted average maturity (WAM) and required disclosed holdings. Our clients feel that adding flexibility and some form of insurance may provide additional safety and liquidity improvements with their investments, which meets the primary objectives of corporate treasury.”


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