skip to main content
Close Icon We use cookies to improve your website experience.  To learn about our use of cookies and how you can manage your cookie settings, please see our Cookie Policy.  By continuing to use the website, you consent to our use of cookies.
Global Search Configuration
From Money Fund Report®: The announcement this week that Mary Jo White will leave her post as Chair of the Securities and Exchange Commission in January wasn’t unexpected, considering the outcome of the presidential election on Nov. 8, sources told Money Fund Report®. Other similar announcements are anticipated in the weeks ahead. The new Trump administration may find, however, that keeping its promises to revise or rescind Obama-era financial regulation may be challenging, and one prominent observer contends that money-market-fund regulation, in particular, is here to stay.

"Money-market-fund regulation is an unusual, and probably atypical example of recent regulation that may be difficult to unwind," explained Robert Plaze, formerly deputy director of the SEC’s Division of Investment Management and currently a partner at law firm Stroock & Stroock & Lavan LLP. "First, working through the process of money-fund reform was a huge and multiyear undertaking, and almost certainly a painful one." Unlike many other recent regulatory initiatives, he noted, this one didn’t break along typical Republican-Democrat lines. "The two Republican commissioners and the two Democratic commissioners saw the issue differently and voted differently, leaving Chair White to cast the deciding vote." Considering the absence of an ideological split among commissioners, there may be less incentive to reconsider this particular regulation, Plaze said. "Doing so could open a wound that should be allowed to heal."

Two other considerations may argue against any effort to revisit money-fund reform by White’s replacement, the two sitting commissioners who opposed the final rule in 2014, and two commissioners to be confirmed to succeed departed members who voted with White to finalize the latest series of rule changes. "The first is that, in contrast to some other regulatory initiatives that are unfinished, money-market-fund reform is complete and took full effect in October," Plaze observed. "The Eagle has landed, so to speak, and considering the time and resources invested on all sides in complying with the new regulation and the likelihood that a newly-constituted SEC will have a new set of priorities, why would regulators or the fund industry want to go through again what they’ve been through over the past several years?"

The second consideration, Plaze noted, is that the industry isn’t likely to lobby for a change in a provision of money-fund regulation that it had suggested and supported. "It’s likely that in establishing its priorities, a newly-constituted SEC will want to take some signals from the fund industry about initiatives that the Commission under Chair White pursued that were problematical and that it would want to work with the industry in establishing those priorities," Plaze said. Money-market-fund reform was certainly problematical, he acknowledged, but as it turned out, it was less so because of the imposition of a floating NAV on prime funds – something regulators pressed hard for – than because of fees and gates, provisions Plaze observed were suggested and promoted by the industry. "The huge migration of assets from more profitable prime funds to less profitable government funds," which he said has transformed the industry, at least in the short term, "was largely the result of concerns about fees and gates, and therefore it would put the industry in a difficult position to advocate for amending or rescinding a key provision in money-fund regulation that it had supported," Plaze maintained.

About suggestions that, short of substantial reform, an industry-friendly SEC could moderate some provisions of money-fund reform, such as allowing some prime institutional funds to return to constant-net-asset valuation and operate without gates and fees, Plaze was circumspect. "It might be possible, but that suggestion and others like it exist now in a world of ideas where virtually everyone will suggest things that should be done – or undone." What we’re facing in the months ahead, he stressed, "is a world of pragmatic ‘regulatory reset’ in which a new SEC chair and new SEC commissioners will establish a list of priorities and get things in place to achieve them." Money-market reform, he noted, isn’t likely to be high on that list.

"With the election only a week or so behind us, there are more questions than answers about the future course of financial reform," Plaze concluded. "However, it’s good to ask the questions as we speculate about where we go from here. The important consideration is that it would be hard to unscramble the eggs of money-fund reform so soon after it took effect, and regulators may have other pressing issues on their plate."

Recommended Articles

  • iMoneyNet - Money Market Fund Analysis

    The Pandemic’s Slippery Slope for T-F Funds

    By Paul Adams 28 Jun 2021

    The 2020 pandemic, and the policy response it generated from the U.S. Federal Reserve, greased an already slippery slope for U.S. tax-free (T-F) and municipal money-market funds. Over the following 16 months, such funds saw both their number and the assets they hold drop to historic lows. From January 2020 – just prior to the global COVID outbreak – to May of this year, the number of tax-free funds tracked by iMoneyNet declined 14%, from 187 to 162. During the same period the assets they manage declined from $141 billion to $92.4 billion, a 35% slump.

    Topics Industry News

  • iMoneyNet - Money Market Fund Analysis

    iMoneynet Monthly Fund Report

    By Paul Adams 22 Jun 2021

    The pandemic-fueled volatility of 2020 had the effect of driving total, taxable, government, and retail U.S. money-market fund assets higher, but it had the opposite effect on the already-struggling tax-free and municipal-fund sector of the industry, reducing the number of tax-free funds by nearly 15 percent since January 2020 and assets in those funds over the same period by 41.7 percent to the lowest levels since iMoneyNet began tracking tax-free fund data in 1981. As of end-May 2021, total assets in tax-free funds stood at $92.4 billion, down from $107 billion in early January and from $141.0 billion in January 2020, just prior to the outbreak of the COVID pandemic, as the table above shows. Similarly, the number of funds fell to 162 on May 31 of this year, a reduction from 185 as the year began and from 187 in early 2020. Read more...

    Topics Industry News

  • iMoneyNet - Money Market Fund Analysis

    iMoneynet Monthly Fund Report

    By Paul Adams 24 May 2021

    Bank of England Governor Andrew Bailey has added his voice and the BoE’s authority to the chorus of regulators, academic researchers, think tanks, and even some fund sponsors – such as Charles Schwab – in arguing for a reconsideration of the role played by MMFs last spring and advocating for additional reforms. In remarks delivered at a U.K. financial conference last week, Bailey explicitly refuted arguments made by MMF defenders that structural vulnerabilities in money funds played no significant or consequential role in last spring’s pandemic-induced “dash-for-cash,” and he committed the Bank – through the Financial Stability Board – to follow through on reforms so as “to avoid history repeating itself yet again.” Read more...

    Topics Industry News

;

Any questions? Speak to a specialist

Would you like to request sample data or analysis from Informa Financial Intelligence? 

See how our tailored solutions can help you gain a competitive advantage: