Money Market Funds Vote Expected on 29 August

Securities and Exchange Commission (SEC) chairman Mary Schapiro plans a vote on 29 August on proposals to tighten the US regulation of money market funds (MMFs), according to reports.

The vote by regulators will come after months of wrangling on whether the US$2.6 trillion industry is in need of new regulation. Schapiro has headed a public campaign for further rules, following a run on one fund, Reserve Primary, in 2008 that threatened to destabilise the financial system. Federal regulators and some administration officials share her concerns and regard MMFs as a weak link in the financial system

However, some agency commissioners have indicated that they oppose tighter regulations as the SEC already imposed new rules to strengthen liquidity requirement in 2010. Republicans Troy Paredes and Daniel Gallagher Jr and one Democrat, Luis Aguilar, have said they don’t see sufficient evidence that further overhauls are necessary, while Schapiro is supported by Elisse Walter.

By setting a public vote for 29 August, the SEC will put pressure on all five commissioners to take a public position although officials indicated that the date could be delayed as Schapiro works to gain support.

The mutual fund industry has also strongly opposed further regulation, arguing that it would effectively kill their businesses.

Ahead of the vote regulators have shared a list with lawmakers of about 300 MMFs that are believed to have quietly received bailouts from their parent companies over the past 23 years. The SEC says that the list evidences that MMFs are not as safe as the industry insists and may need new regulations. The industry has retorted that the SEC’s list is misleading, partly because many of the funds were given assistance only as a precaution.

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