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Wednesday, November 14, 2012

FSOC Recommends Money Market Mutual Fund Reforms

The Financial Stability Oversight Council (FSOC) yesterday voted unanimously to release three proposed recommendations to reform the money market mutual fund industry.

The FSOC issued the proposed recommendations because SEC Chairman Mary Schapiro in August was unable to garner support from a majority of commissioners to move forward with a reform proposal. To break the SEC stalemate, Treasury Secretary Timothy Geithner, who chairs the FSOC, urged the council in a Sept. 27 letter to take up MMF reform.

There will be a 60-day public comment period on the proposed recommendations. “The council will consider the comments and may issue a final recommendation to the SEC,” the FSOC explained. The SEC would be required under the Dodd-Frank Act to adopt the recommendation or explain in writing to the FSOC why it had failed to act.

The FSOC’s three proposed recommendations would require funds to float their net asset values, rather than fixing values at $1 a share; hold a stable NAV and maintain a buffer of capital to absorb day-to-day fluctuations in value; or keep a risk-based NAV buffer of 3 percent combined with other measures to increase their resilience.

“The … proposed recommendations are not mutually exclusive and could be implemented in combination to address the structural vulnerabilities that result in the susceptibility of MMFs to runs,” the FSOC said. The council added that it also is seeking comments on other potential reforms that could address those vulnerabilities and mitigate the risk of runs.

Comments on the proposals will be due 60 days after publication in the Federal Register.

Read more.
Read the FSOC’s proposed recommendations.

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