The ‘Hue and Cry’ over Money Market Funds Is a Chorus of Many Voices

By Paul Schott Stevens

February 24, 2012

Securities and Exchange Commission Chairman Mary Schapiro took aim at money market funds again today, this time lamenting “the hue and cry being raised by the industry” against the proposals that she champions.

I confess—the fund industry has become increasingly vocal in opposing the Commission’s reported proposals to force money market funds to abandon their stable $1.00 per-share net asset value or to accept costly capital buffers and impose freezes on their investors’ assets.

After providing concrete ideas and sound analysis on issues surrounding money market funds to regulators for almost five years, we are dismayed to find the Commission pursuing flawed proposals that will harm investors, damage financing for businesses and state and local governments, and jeopardize a still-fragile economic recovery. And so we are speaking out.

But the “hue and cry” that Chairman Schapiro should be heeding is also coming from other quarters. It’s coming from corporate treasurers and business leaders, who see the SEC’s proposals as a threat to the cash management and commercial paper that is the lifeblood of their companies. It’s coming from state and local governments, wondering what financial vehicle can replace the funding they receive from $290 billion held in tax-exempt money market funds.

The chorus of opposition is coming from nonprofits like colleges and universities, and it’s coming from investor advocates. And it’s coming from lawmakers on both sides of the aisle, including a bipartisan group of U.S. Senators expressing concern about proposals “that could potentially create disruptions in our fragile economy, impair the ability of businesses to raise capital efficiently, harm retail investors, and increase stress on municipal budgets.”

More than 100 groups have spoken out against forcing money market funds to “float” their value, and many more are rallying against costly capital buffers and forced freezes on investor assets. And they’re wondering why the SEC is pursuing these harmful ideas now. As the Associated Industries of Florida has written, “At a time when access to capital is a challenge for most business owners, increasing the financing costs of proven financial instruments like MMFS [money market funds] would further erode any hope for rapid job creation and economic activity.”

The SEC is charged by law with considering the impact of its regulations on investor protection, efficiency, competition, and capital formation. America’s business, America’s states and cities, and America’s investors are telling the Commission that its money market fund proposals fail those tests. That’s the “hue and cry” Chairman Shapiro needs to hear.

Paul Schott Stevens is President and CEO of ICI.

For more information and analysis on the SEC’s reported proposals, see www.ici.org/mmfs.

Here’s a sampling of statements questioning the SEC’s push for additional regulation of money market funds: