US Treasury secretary, Timothy Geithner, is applying new pressure to the Securities and Exchange Commission (SEC) to overhaul its rules on money market funds (MMFs), following SEC chairperson Mary Schapiro’s decision last month to abandon plans to vote on
proposed structural reforms
Geithner issued a letter on 27 September to members of Federal government organisation the Financial Stability Oversight Council (FSOC) seeking their help in pressuring the SEC to change its rules. Geithner, who heads the panel, said the changes are necessary to protect the system and US financial system would “remain vulnerable to runs and instability” in the absence of change.
Geithner also said in his letter that if the SEC fails to act “in a timely and effective manner”, the council should take its own steps. Those could potentially include designating some MMFs as firms that pose a threat to the financial system if they were to fail, which would put them under close oversight by the Federal Reserve.
The treasury secretary added he is hopeful that the council will consider voting at a meeting in November to formally recommend that the SEC impose additional regulation on the industry.
Although the SEC’s Schapiro is also a proponent for further regulation, she was forced to abandon plans for the vote, originally scheduled for 27 August, only days before as she had to acknowledge that three of the agency’s five commissioners did not support her proposed changes.
Geithner believes that the FSOC should vote to recommend that the SEC consider two alternatives proposed previously by Schapiro, plus a third option for reform of the industry. Of the two reforms sought by Schapiro, one would impose capital restrictions on the funds, combined with limitations or fees on redemptions by consumers. The other would permit a floating net asset value (NAV) for MMFs. Money fund managers have argued that either approach would damage the industry.
Geithner is suggesting a third approach that would entail imposing capital and liquidity standards on money funds or temporary gates on redemption.
The US money market fund reforms came into effect in 2016 and are already dramatically shaping US fund industry with investors flooding out of prime funds and into government securities. While the reforms are similar, they are not the same. GTNews interviews Yeng Bulter, global head of the cash business at State Street Global Advisors on the differences.
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