Money Market Funds
Operations and Technology
The Challenges of Dodd-Frank Implementation
By Paul Schott Stevens
March 31, 2011
Even though our industry was not a direct target of the Dodd-Frank Wall Street Reform and Consumer Protection Act, funds face challenges in coping with the law’s implementation. At the U.S. Chamber of Commerce’s Fifth Annual Capital Markets Summit yesterday, I had a chance to discuss several of these challenges and their implications for funds and regulators alike. Here are a few takeaways from that discussion.
Multiplicity of Regulators
Despite many calls for consolidating U.S. financial regulatory agencies, under Dodd-Frank we find ourselves monitoring and interacting with a significantly broadened array of regulatory bodies on behalf of our member funds and their investors: the Financial Stability Oversight Council (FSOC), the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Commodity Futures Trading Commission, as well as funds’ primary regulator, the Securities and Exchange Commission (SEC). Other industries also are dealing with the new Consumer Financial Protection Bureau. This development—more regulators—introduces new uncertainties into our operations.
Use of Expansive Powers
Many of these regulators are new to our industry, and one—the FSOC—is simply new. That lack of familiarity heightens our concern in areas where regulators have been granted expansive authority and where we have yet to see how they will exercise it.
For example, precisely how the FSOC will exercise its authority to designate systemically important nonbank financial companies (or “SIFIs”) for heightened supervision and regulation by the Federal Reserve Board remains an open question. The FSOC’s public pronouncements to date reveal very little about the Council’s views.
ICI has urged that the FSOC reserve its designation authority for very limited circumstances—where it has determined both that a specific company poses significant risks to the financial system and that other regulatory measures are clearly inadequate to address those risks. The FSOC and other financial regulators must not forget that they have multiple regulatory tools at their disposal. As I wrote on Viewpoints last month, SIFI designation is just one of those tools, and a rather blunt one at that.
We are also concerned by instances of regulators making conscious policy decisions to propose rules that either go beyond Dodd-Frank’s requirements or that are unnecessary to implement the statute. Take, for example, the issue of proxy access. Dodd-Frank expressly provided that the SEC may “exempt an issuer or class of issuers” from any new shareholder access requirements, implicitly requiring the SEC to consider the impact of its regulations on unique classes of companies and to provide a reasoned justification for its decision to include them within the rules. Yet despite the material differences between investment companies and operating companies—which we brought to the SEC’s attention during the comment period—the SEC’s rulemaking on proxy access inexplicably treats them the same.
The Need for Effective and Efficient Regulators
There is another part of Dodd-Frank implementation that has nothing to do with any particular rulemaking but very much warrants our attention, namely Dodd-Frank’s focus on reforms that would make the SEC itself a better, more efficient, and more capable regulator.
To this end, as required by Dodd-Frank, the SEC commissioned a study by the Boston Consulting Group (BCG). The BCG report, which was delivered to Congress on March 10, paints a picture of an agency that has made steps in the right direction, but has far more to do.
In particular, the BCG report observes that the SEC needs to enhance its industry knowledge and develop greater expertise in risk management and data analytics. We very much agree with this assessment. There is a compelling need for the SEC to inform itself about its regulated industry and market, as well as the economic consequences of its regulations. Without that, the SEC is likely to continue to propose rules that could make financial firms or products less competitive, less innovative, less attractive to talented professionals, and less available to investors. We believe more can and should be done to develop the agency’s economic research and analytical capabilities, and we sincerely hope that it takes the recommendations in the BCG report to heart.
Dodd-Frank has the potential to improve the regulation of our financial system, and we in the fund industry are working hard to meet with the law’s implementation schedule. To make these reforms a success, regulators must proceed with care and strike the right balance.
Paul Schott Stevens has served as President and Chief Executive Officer of the Institute since June 2004.
For the Fund Industry, “Sunlight Through the Clouds”
By Karrie McMillan
March 29, 2011
The U.S. financial system is emerging from the global crisis. Financial markets have regained their footing. The Federal Reserve has significantly reduced its emergency facilities. The Securities and Exchange Commission has adopted its amendments to Rule 2a-7 for money market funds.
Who Gets Retirement Plans and Why
By Peter Brady and Michael Bogdan
March 25, 2011
Most workers who are likely to have the ability to save and to be focused primarily on saving for retirement have access to employer-provided retirement plans, according to research we just released.
TOPICS: Retirement Research
Expense Ratios in 2010: Stock Funds Down, Bond Funds Flat
By Sean Collins and Michael Breuer
March 24, 2011
Mutual fund investors in 2010 paid lower average expense ratios in stock funds, but bond fund expense ratios remained unchanged, according to an annual research report on fund fees and expenses that we released today.
TOPICS: Policy Research
Closed-End Fund Assets Up 7 Percent in 2010
By Daniel Schrass, Judy Steenstra, and Dorothy Donohue
March 18, 2011
Total closed-end fund assets were $241 billion at year-end 2010, up 7 percent from year-end 2009, according to our recently released annual research report on the closed-end fund market. On net, closed-end fund assets increased by $16 billion during 2010.
TOPICS: Investor Research
The Facts on Mutual Funds and Securities Lending
By Michael L. Hadley, Tamara K. Salmon, and Gregory M. Smith
March 18, 2011
Recent stories in the press have addressed the issue of securities lending, particularly in the context of 401(k) plans. For example, a March 16 story in the Wall Street Journal (“Disclosure Sought on Fund Lending”) suggests that securities lending’ in 401(k) plans “prevented some employers and investors from withdrawing their money during the financial crisis.”
TOPICS: Retirement Policy
Treasury Secretary Timothy F. Geithner to Provide Policy Perspective at ICI’s 2011 GMM
By Sandra J. West
March 9, 2011
Since 1959, ICI’s General Membership Meeting has provided fund industry executives an exceptional forum to discuss key business issues, gain a deep understanding of the policy landscape, and network with colleagues from around the country and overseas.
ICI Will Scrutinize Proposal Removing Ratings Requirement from Money Market Fund Rules
By Jane G. Heinrichs and Heather L. Traeger
March 4, 2011
On Wednesday, the Securities and Exchange Commission voted unanimously in favor of a proposal that would eliminate credit ratings as a required element in determining which securities are permissible investments for money market funds.
TOPICS: Money Market Funds
For the Sake of Retirement Savers, ERISA Rules Defining “Fiduciary” Need Clarity
By Paul Schott Stevens
March 3, 2011
Fiduciary status entails one of the highest obligations known to the law. Essentially, a fiduciary is one who takes it upon himself or herself to act for or advise another, thus inviting the other’s confidence and trust.
TOPICS: Retirement Policy
40 Years Later, Money Market Funds Still Aren’t Banks
By Brian Reid
March 3, 2011
Paul A. Volcker is a distinguished leader who for decades has devoted his prodigious talents to the service of our country. However, as he makes clear in his recent comment letter to the Securities and Exchange Commission, his long opposition to money market funds—dating back almost 40 years—hasn’t ended.