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For Funds' Use of Derivatives, a Promising New Regulatory Framework

By Paul Schott Stevens

April 22, 2020

Comprehensive SEC rules govern most activities in the US-registered fund industry, but the use of derivatives is not one of them. For more than 40 years, funds employing these practical portfolio management tools for their investors have instead had to negotiate an increasingly complex accumulation of guidance, no-action letters, and informal comments from Commission staff.

Now, constructive reform might soon be on the way. In a promising new proposal, the SEC has consolidated this cumbersome regulatory framework into a single, comprehensive rule.

Carefully designed to protect investors, the proposal would require a fund to develop and maintain a formal derivatives risk management program, administered by a dedicated derivatives risk manager and overseen by the fund’s board. Each fund would be able to tailor elements of its program to the types of derivatives it uses, and to how they affect its portfolio and strategy.

The proposal would also require funds to limit their use of leverage, as determined by a measure called “value-at-risk” (VaR). Unlike the limits on gross notional exposure contemplated in the SEC’s 2015 proposal on this topic, VaR tests yield useful information about a fund’s economic risk and help constrain it. Asset managers commonly use VaR tests already, and this should enable firms to manage their leverage risk consistently across funds and ease the proposed rule’s significant compliance burdens.

We at ICI are pleased that the proposal would achieve the SEC’s goals of limiting undue speculation and ensuring that funds can meet their obligations under their derivatives transactions, while permitting funds and their investors to benefit from these important portfolio management tools. The deeply flawed 2015 proposal would have hampered funds’ ability to manage their portfolios effectively, and the Commission deserves credit for its efforts toward crafting a far better approach this time around.

But no rulemaking proposal can be perfect, especially one as complex as this. As we explained in comments to the SEC on Monday, some targeted adjustments to the proposal could enhance it considerably.

Among our main recommendations, we are urging the SEC to exclude certain firm and standby commitments from the definitions of derivatives transaction and senior security. Doing so would ensure that funds investing solely or primarily in these instruments—which neither create leverage nor pose any of the other risks that transactions more commonly known as derivatives can—do not unduly fall subject to a rule designed to mitigate these risks.

The SEC would also do well to modify the criteria that funds must use when selecting a securities index for comparison against their relative VaR. Our thinking here is that an index reflecting a fund’s investment strategy—rather than simply the markets or asset classes in which it invests—would align more closely with investors’ expectations of its volatility and risk.

Perhaps most important, the Commission should revise the proposal’s limits on leverage. A moderate increase would control undue speculation just as well as the proposed limits, but would force fewer funds to deregister or change their investment strategy. It also would align fund leverage restrictions in the United States with those in other major jurisdictions.

For the many benefits they can provide to investors, derivatives have become one of the most important devices in a fund manager’s toolkit. Not only do they help funds lower their costs and enhance their liquidity, they also help funds better manage risk, access hard-to-reach asset classes, equitize cash, and more.

The time is now for a sound regulatory framework in this space—one that establishes robust safeguards to protect investors while fully preserving the benefits that derivatives can provide them. As the SEC works to refine its proposal in the coming months, ICI will be engaging closely with exactly that goal in mind.

Paul Schott Stevens is president and CEO of the Investment Company Institute.

https://www.ici.org/viewpoints/20_view_derivatives

TOPICS: Equity InvestingExchange-Traded FundsFund RegulationMoney Market FundsMutual FundShareholder

Talkin’ ’Bout the Generations: ICI Research on Mutual Fund Ownership by Generation

By Michael Bogdan and Candice Gullett

December 11, 2019

Talk about the differences between generations is a hot topic in today’s cultural conversation. And the Millennial and Baby Boomer generations are in the middle of a little generational warfare. But when it comes to owning mutual funds, are there really that many differences? 

Read more…

TOPICS: 401(k)Equity FundEquity InvestingIRAInvestor ResearchMoney Market FundsRetirement ResearchSavings

Average Expense Ratios for Long-Term Mutual Funds Continued to Decrease in 2016

By Morris Mitler and Sean Collins

May 23, 2017

ICI recently released its report on the expense ratios of mutual funds: “Trends in the Expenses and Fees of Funds, 2016.” This is ICI's first report that also summarizes expense ratios for exchange-traded funds (ETFs). 

Read more…

TOPICS: Bond FundEquity InvestingExchange-Traded FundsFederal ReserveFixed IncomeInterest RateMoney Market FundsMutual Fund

Stevens Calls for Measures to Enhance Economic Growth

By Rachel McTague

May 5, 2017

With America striving to achieve greater economic growth, Paul Schott Stevens, ICI president and CEO, called on the Securities and Exchange Commission (SEC) to enhance funds’ essential role in the capital markets by proposing new rules to govern funds’ use of derivatives and by creating a harmonized best-interest standard for advisers providing investment advice to retail and retirement investors. The ICI chief also urged the SEC to adopt a fund disclosure regime for the 21st century.

Read more…

TOPICS: EventsFinancial MarketsFinancial StabilityFund RegulationGMMMoney Market FundsMutual Fund

What's the “Exposure” of Money Market Funds to Europe?

By Sean Collins

January 26, 2017

At the American Economic Association (AEA) meetings in Chicago early this month, speakers and attendees at several sessions asked: do money market funds pose systemic risks?

Read more…

TOPICS: EuropeFederal ReserveFinancial MarketsFinancial StabilityFund RegulationInternationalMoney Market FundsMutual Fund

Money Market Fund Reforms Combine with Bank Regulations to Boost Interest Rates

By Sean Collins

September 28, 2016

As detailed in the previous ICI Viewpoints in this series, the Securities and Exchange Commission’s (SEC) new rules for money market funds induced a drop in the assets of prime and tax-exempt money market funds of $910 billion since January 2015 and a roughly comparable $872 billion rise in the assets of government money market funds.

Read more…

TOPICS: Financial MarketsFund RegulationMoney Market FundsMutual FundOperations and Technology

As Money Market Fund Investors Adjust, Funds Have Managed Flows

By Sean Collins

September 27, 2016

The Securities and Exchange Commission’s new rules for money market funds, which must be fully implemented by October 14, largely center around two key reforms.

Read more…

TOPICS: Financial MarketsFund RegulationMoney Market FundsMutual FundOperations and Technology

For Money Market Funds, Massive Preparation Has Paid Off in Smooth Transition

By Marty Burns

September 26, 2016

First in a series on money market funds.

By October 14, the money market fund industry must fully implement the 2014 money market fund reforms passed by the Securities and Exchange Commission (SEC), cementing major changes for investors and fund complexes. ICI has been in close constant contact with members since the rules were enacted in 2014 and has been working with operations and other professionals throughout the industry to ensure an orderly transition—including fully informing investors—to the new regime in October.

Read more…

TOPICS: Financial MarketsFund RegulationMoney Market FundsMutual FundOperations and Technology

Changes to Money Market Funds Are Showing Up in Data

By Sean Collins

November 10, 2015

In July 2014, the Securities and Exchange Commission (SEC) adopted new regulations for money market funds.

Read more…

TOPICS: Fund GovernanceFund RegulationMoney Market Funds

Ignore the IMF’s Uninformed Call for a Third Round of Reforms to U.S. Money Market Funds

By Jane Heinrichs and Chris Plantier

July 23, 2015

A year ago today, the U.S. Securities and Exchange Commission (SEC) voted to adopt sweeping reforms to its rule governing money market funds.

Read more…

TOPICS: Financial MarketsFinancial StabilityFund RegulationMoney Market FundsMutual FundTreasury

Federal Reserve Reverse Repo Facility Helps Stabilize Short-Term Money Markets

By Chris Plantier

April 17, 2015

Following a pattern observed at the end of recent quarters, money market fund holdings of European issuers dropped at the end of March, although the decline was not as large as the previous quarter, ending December 2014. As we have noted before, for regulatory reasons European banks have been paring their balance sheets at the end of each quarter, resulting in a temporary decline in their desire to borrow from money market funds.

Read more…

TOPICS: BondsEuropeFederal ReserveFinancial MarketsFixed IncomeFund RegulationInvestment EducationMoney Market FundsTreasury

European Banks Borrow Less from MMFs; the Federal Reserve Borrows More

By Chris Plantier

January 20, 2015

As we discussed in April and July of last year, due to regulatory pressures European banks generally have become less willing to borrow from U.S. money market funds (MMFs), especially at the end of the quarter. This quarter-end effect was particularly large at the end of December 2014.

Read more…

TOPICS: EuropeFederal ReserveMoney Market FundsTreasury

“Preemptive Runs” and Money Market Fund Gates and Fees: Theory Meets Practice

By Sean Collins and Chris Plantier

August 20, 2014

A recent post on the blog of the Federal Reserve Bank of New York discusses the possibility that new rules by the Securities and Exchange Commission (SEC) allowing money market funds to temporarily impose fees or gates during times of market instability could increase the risk of preemptive runs on such funds during times of stress, rather than helping to limit destabilizing withdrawals, as the SEC intended.

Read more…

TOPICS: EuropeFederal ReserveFinancial StabilityFund GovernanceFund RegulationGovernment AffairsInternationalMoney Market FundsTreasury

European Banks Significantly Reduced Borrowing from U.S. Money Market Funds in June

By Chris Plantier

July 18, 2014

As we discussed in March and April, European banks have generally become less willing to borrow from U.S. money market funds due to regulatory pressures, especially at the end of the quarter. Specifically, the new Basel III requirements seek to increase capital ratios of banks and explicitly limit how much banks fund their operations through short-term borrowing (which includes short-term securities banks issue that money market funds invest in). This quarter-end effect was particularly strong at the end of June as European bank regulators continued to monitor bank progress toward meeting the new Basel III requirements, which will be fully phased in over the next few years.

Read more…

TOPICS: BondsEuropeFederal ReserveFinancial MarketsFixed IncomeFund RegulationInvestment EducationMoney Market FundsTreasury

SEC Chair White Stresses Need for FSOC to Consult Sources for Necessary Expertise

By Rachel McTague

May 22, 2014

Securities and Exchange Commission (SEC) Chair Mary Jo White today called for the U.S. Financial Stability Oversight Council (FSOC) to use outside expertise to the degree necessary in its process of designating systemically important financial institutions (SIFIs).  She asserted that it is “enormously important for FSOC, before it makes any decision of any kind, to make sure it has the necessary expertise on any of those issues.”

Read more…

TOPICS: EventsFederal ReserveFinancial MarketsFinancial StabilityFund GovernanceFund RegulationGMMGovernment AffairsMoney Market FundsMutual FundOperations and TechnologyShareholderTradingTreasury

Seasonality, U.S. Money Market Funds, and the Borrower of Last Resort

By Chris Plantier

April 16, 2014

The March money market fund holdings data indicate a large drop in the share of fund assets allocated to European counterparties and a large increase in the share of fund assets allocated to U.S. counterparties. This shift is likely temporary and reflects reduced willingness of European banks to borrow from money market funds at the end of the quarter, rather than reduced demand from money market funds. Also, the increase in lending to U.S. counterparties is almost entirely due to the large increase in money market fund lending to the Federal Reserve via its overnight reverse-repo (repurchase agreement) facility.

Read more…

TOPICS: BondsEuropeFederal ReserveFinancial MarketsFixed IncomeFund RegulationInvestment EducationMoney Market FundsTreasury

U.S. Prime Money Market Funds and European Borrowing

By Chris Plantier

March 18, 2014

European holdings by U.S. prime money market funds have fluctuated significantly since early 2011.

Read more…

TOPICS: BondsFederal ReserveFinancial MarketsFixed IncomeFund RegulationInvestment EducationMoney Market FundsTreasury

Money Market Funds and Liquidity Ratios: Why So High and Stable?

By Chris Plantier

February 19, 2014

Second in a series of posts about ICI’s new data release, a monthly compilation and summary of portfolio data from taxable money market funds. To find out more, read the first post about the new data summary or this list of answers to frequently asked questions.

The SEC’s 2010 money market fund reforms require taxable funds to hold at least 30 percent of their assets in securities that are deemed to be liquid within five business days (known as weekly liquidity) and at least 10 percent of their assets in securities that are deemed to be liquid in one business day (known as daily liquidity). In practice, money market funds—especially government money market funds—hold liquidity well above these minimum standards, and these ratios change very little in any given month.

Read more…

TOPICS: BondsFederal ReserveFinancial MarketsFixed IncomeFund RegulationInvestment EducationMoney Market FundsTreasury

ICI’s New Data Release: Further Enhancing the Transparency of Money Market Funds

By Chris Plantier

January 21, 2014

The 2010 reforms to money market mutual funds greatly enhanced the transparency of these funds, giving regulators, analysts, and investors greater insight into important elements of funds’ holdings and operations.

The reforms required funds to disclose their entire portfolio holdings to the public on their company websites five business days after the end of each month. Money market funds also are required to file a more detailed disclosure—SEC Form N-MFP—with the Securities and Exchange Commission directly. The SEC releases this more detailed data to the public 60 days after it’s filed. The SEC does not, however, summarize the data, leaving the public with no non-commercial access to a broad look at holdings across the industry.

Read more…

TOPICS: BondsFederal ReserveFinancial MarketsFixed IncomeFund RegulationInvestment EducationMoney Market FundsTreasury

‘Sponsor Support’ for Money Market Funds Is Old—and Overblown—News

By Mike McNamee

October 21, 2013

A story in the October 21 issue of the Financial Times (“Almost 20 money market funds bailed out”; subscription required) takes old numbers and tries to present them as news.

Read more…

TOPICS: Financial MarketsFund RegulationMoney Market Funds

Money Market Funds and the Debt Ceiling: What Do We Know?

By Brian Reid

October 14, 2013

As the U.S. Treasury reaches the limits of its borrowing authority this week, markets and the media are focusing on the risk that the United States will default on its debt and fail to pay interest or principal on maturing Treasury securities, perhaps before the end of October.

Read more…

TOPICS: Bond FundBondsFederal ReserveFinancial MarketsGovernment AffairsMoney Market FundsTreasury

Getting the Facts Right on Money Market Funds

By Paul Schott Stevens

September 18, 2013

This week, I testified before Congress at a hearing on the issue of money market funds and recent regulatory proposals from the Securities and Exchange Commission (SEC) that would amend the rules governing these funds.

The hearing provided an excellent opportunity to continue to educate Congress on the benefits that money market funds bring to investors and to the economy as a whole. In my testimony, I emphasized the Institute’s views on making sure that regulatory proposals do not upset the crucial role that money market funds play.

Read more…

TOPICS: Financial MarketsGovernment AffairsMoney Market FundsTreasury

Fact Checking the Media on Money Market Funds

By Mike McNamee

June 7, 2013

The media has heavily covered the unanimous vote by the Securities and Exchange Commission (SEC) to proceed with another round of regulatory changes for money market funds. In digesting this coverage, readers and journalists alike should make sure they have solid facts about money market funds. They also should be on guard for errors and omissions that tend to recur in stories and commentary on this issue.

Read more…

TOPICS: Money Market Funds

On Money Market Funds, Financial Times Column Gets Recent History Wrong

By Paul Schott Stevens

June 6, 2013

John Authers’s recent Financial Times column (“Time to Throw Some Light on Shadow Banking”) provides an incomplete view of the recent history of U.S. money market funds and regulatory action around these funds. Readers need more facts.

Read more…

TOPICS: Money Market Funds

IMF Analysis Ignores 2010 Money Market Fund Reforms and Exaggerates Run Risk

By Sean Collins and Chris Plantier

April 26, 2013

The Securities and Exchanges Commission’s comprehensive 2010 reforms for money market funds are a proven success. As ICI research has shown, the reforms strengthened the funds and enhanced financial stability.

Read more…

TOPICS: Financial MarketsMoney Market Funds

FTT Would Shut Financial Institutions in Participating Countries Out of Repo Market

By Shelly Antoniewicz and Peter Brady

April 22, 2013

The European Commission has proposed imposing a 0.1 percent (10 basis points) levy on financial transactions. As ICI has detailed, this financial transaction tax (FTT) would have a host of negative consequences, including harm to investors and extraterritoriality.

Read more…

TOPICS: ICI GlobalMoney Market FundsTaxes

U.S. Prime Money Market Funds’ Eurozone Holdings Remain Low and Limited in Scope

By Emily Gallagher and Chris Plantier

March 28, 2013

Given February’s elections in Italy and recent developments in Cyprus, questions have resurfaced about the eurozone debt crisis and how it might affect the U.S. economy.

Read more…

TOPICS: Financial MarketsMoney Market Funds

Narrowing the Focus to Prime Money Market Funds

By Brian Reid

March 25, 2013

One of ICI’s key points in our responses to recent policy proposals for money market funds is that no case can be made for applying fundamental changes to Treasury, government, and tax-exempt money market funds.

Read more…

TOPICS: Financial MarketsMoney Market Funds

The New York Fed’s Flawed Approach to Fixing the Money Market

By Brian Reid

March 4, 2013

William C. Dudley, president and CEO of the Federal Reserve Bank of New York, recently delivered a speech, “Fixing Wholesale Funding to Build a More Stable Financial System.” I was interested to read his remarks, as the New York Fed has been instrumental in pursuing reforms to strengthen the financial markets, particularly in the market for tri-party repurchase agreements.

Read more…

TOPICS: Financial MarketsMoney Market Funds

Money Market Funds: There Goes the Wall Street Journal Again

Paul Schott Stevens

February 21, 2013

Over the past three years, the Wall Street Journal has published six editorials on money market funds, and each has advanced more myths and distortions about these funds.

Read more…

TOPICS: Money Market Funds

ICI Responds to Letter on Money Market Funds from Federal Reserve Bank Presidents

Ianthé Zabel

February 12, 2013

Today, ICI made the following statement in response to a comment letter on money market fund reforms filed with the Financial Stability Oversight Council (FSOC) by the presidents of the 12 regional Federal Reserve banks.

Read more…

TOPICS: Money Market Funds

Money Market Funds and the Expiration of Unlimited Deposit Insurance

By Sean Collins and Chris Plantier

January 28, 2013

As stipulated in the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Federal Deposit Insurance Corporation’s unlimited insurance coverage on non-interest bearing transaction accounts, also known as the Transaction Account Guarantee (TAG), expired on December 31, 2012.

Read more…

TOPICS: Financial MarketsMoney Market Funds

A Comprehensive View on How to Preserve Money Market Funds and Further Their Stability

By Paul Schott Stevens

January 25, 2013

Since the financial crisis, ICI has supported exploring reasonable options to make money market funds even more resilient.

Read more…

TOPICS: Money Market Funds

The Reasonable Balance of the 2010 Reforms for Money Market Funds

By Sean Collins and Chris Plantier

January 15, 2013

Financial intermediaries—banks, hedge funds, insurance companies, investment companies, and private equity companies—exist to bring together those who have excess funds with those who need funds. This process naturally entails risk.

Read more…

TOPICS: Financial MarketsMoney Market Funds

On Money Market Funds, False Promises and Faulty Premises from The Wall Street Journal

By Paul Schott Stevens

November 20, 2012

The Wall Street Journal continues its efforts to tar money market funds with the stigma of “bailout” and to impose a solution that will destroy a product that plays a key role in financing the economy (“Liberating Money Funds,” Review & Outlook, November 19).

Read more…

TOPICS: Money Market Funds

Beware Recurring Misstatements on Money Market Funds

By Mike McNamee

November 16, 2012

With the recent action from the Financial Stability Oversight Council, money market funds are receiving extra attention these days from the news media.

Unfortunately, we still see instances where the coverage falls short. Stories and commentary continue to repeat myths and misconceptions about money market funds.

Read more…

TOPICS: Money Market Funds

Do U.S. Banks Rely Heavily on Money Market Funds? No.

By Sean Collins and Chris Plantier

November 14, 2012

Money market funds provide important short-term funding for the U.S. economy: these funds hold a total of $2.5 trillion in Treasury and agency securities, repurchase agreements, and other financial instruments.

Read more…

TOPICS: Financial MarketsMoney Market Funds

The FSOC Fails to Advance the Debate

By Mike McNamee

November 13, 2012

ICI President and CEO Paul Schott Stevens issued the following response to today’s meeting of the Financial Stability Oversight Council (FSOC):

Regrettably, today’s action by the FSOC fails to advance the debate over how to make money market funds more resilient in the face of financial crisis. The Council apparently is proposing to send back to the Securities and Exchange Commission (SEC) the very same concepts that a majority of the Commission’s members declined to issue for public comment in August.

Read more…

TOPICS: Money Market Funds

Paper Concludes Amortized Cost Is Appropriate for Money Market Funds

By Gregory Smith

November 2, 2012

A recently released paper examines the use of amortized cost by money market funds and concludes that its use is appropriate given the short-term, high-quality nature of these funds’ investments. The paper also discusses how use of amortized cost is well supported by more than 30 years of regulatory and accounting standard-setting consideration. Author Dennis R. Beresford is the Ernst & Young executive professor of accounting at the J. M. Tull School of Accounting, Terry College of Business at the University of Georgia. Beresford served as chairman of the Financial Accounting Standards Board (FASB) for more than ten years.

Read more…

TOPICS: Money Market FundsOperations and Technology

Sticking to the Facts of Money Market Fund Regulation

By Dan Waters

October 25, 2012

In a recent column, the Evening Standard’s Anthony Hilton includes money market funds as part of a network he suggests forms “an unregulated zone” with “no oversight.”

Read more…

TOPICS: Fund RegulationICI GlobalMoney Market Funds

The Facts and Principles That Must Guide Money Market Fund Reform

By Dan Waters

October 3, 2012

In Madrid this week, the board of the International Organization of Securities Commissions will choose their course of action on money market funds.

Read more…

TOPICS: Fund RegulationICI GlobalMoney Market Funds

The Wall Street Journal’s Blind Spot on Money Market Funds

By Paul Schott Stevens

October 3, 2012

The Wall Street Journal editors’ Sisyphean labors on money market fund regulation apparently have rendered them incapable of understanding the plain facts of the case.

Read more…

TOPICS: Money Market Funds

Washington Post Column Repeats Money Market Fund Myths

By Ianthé Zabel

September 28, 2012

A recent column published by the Washington Post unfortunately repeats misperceptions and falsehoods about money market funds.

Read more…

TOPICS: Money Market Funds

ICI Responds to Geithner Letter to FSOC on Money Market Funds

By Ianthe Zabel

September 27, 2012

Today, ICI President and CEO Paul Schott Stevens made the following comment in response to a letter from U.S. Treasury Secretary Timothy Geithner to the members of the Financial Stability Oversight Council about proposed money market fund regulations.

Read more…

TOPICS: Fund RegulationMoney Market Funds

U.S. Prime Money Market Funds Remain Cautious with Respect to Eurozone Holdings

By Emily Gallagher and Chris Plantier

September 21, 2012

Over the summer, prime money market funds marginally increased their holdings of eurozone issuers: from 12.2 percent of assets in June (chart) to 14.0 percent of assets in August. This increase was driven primarily by a rise in holdings of French assets (up to 5.1 percent from 4.3 percent in June) and in holdings of German assets (up to 5.1 percent from 4.1 percent in June).

Read more…

TOPICS: Financial MarketsMoney Market Funds

Achieving Real Consensus on Money Market Funds

By Paul Schott Stevens

September 21, 2012

We are disappointed to see Securities and Exchange Commission Chairman Mary L. Schapiro (“In the Money-Market for More Oversight,” Wall Street Journal, Sept. 20) recycling the same arguments already rejected by the majority of her Commission colleagues as a basis for imposing so-called structural changes on money market funds. A “substantial consensus” exists, she argues, in favor of these changes—a consensus of bank regulators, pundits, and journalists.

Read more…

TOPICS: Money Market Funds

Clearing Away the Misconceptions About Money Market Funds

By Paul Schott Stevens

September 10, 2012

A recent New York Times column contains a slew of mischaracterizations regarding recent developments around money market funds.

Read more…

TOPICS: Money Market Funds

The Public Deserves Accurate Reporting of the Debate over Money Market Funds

By Paul Schott Stevens

August 30, 2012

The Financial Times has recently published a story that significantly distorts recent developments around U.S. money market funds and the actions of the U.S. fund industry. Let’s correct the record.

Read more…

TOPICS: Money Market Funds

Money Market Funds Work for Retirement Savers

By David Abbey

August 22, 2012

As they’ve examined possible changes for money market funds, regulators have heard from an extraordinary number of businesses, individuals, and organizations who have expressed their support for preserving the key characteristics of these funds.

Read more…

TOPICS: Money Market Funds

Correcting the Record: The Power of the SEC’s 2010 Money Market Fund Reforms

By Mike McNamee

August 16, 2012

We’ve spent several days pointing out the myths and misstatements that regulators have put forward in their campaign to impose structural changes on money market funds.

Read more…

TOPICS: Money Market Funds

Correcting the Record: Investor Protections in the SEC’s 2010 Money Market Fund Reforms

By Mike McNamee

August 15, 2012

We’ve said it before, and we’ll say it again: One of the most puzzling aspects of regulators’ campaign for changes to money market funds is their ability to ignore the dramatic improvements in these funds resulting from the regulatory reforms that the Securities and Exchange Commission (SEC) enacted in 2010.

Read more…

TOPICS: Money Market Funds

Correcting the Record: What Money Market Fund Investors Know

By Mike McNamee

August 14, 2012

U.S. money market funds are one of the most transparent financial products on the planet.

Read more…

TOPICS: Money Market Funds

Correcting the Record: Uncovering Regulators’ False Narrative of 2008

By Mike McNamee

August 13, 2012

The regulators who are campaigning for structural changes in money market funds are building their case in part on distortions, exaggerations, and misunderstandings about money market funds, their investors, and their role in the financial markets.

Read more…

TOPICS: Money Market Funds

Correcting the Record on Money Market Funds

By Mike McNamee

August 12, 2012

Bad information can’t give rise to good policy. Unfortunately, the regulators who are campaigning for structural changes in money market funds are building their case on information that is deeply flawed at best.

Read more…

TOPICS: Money Market Funds

The SEC’s Data Dump on Money Market Funds Is Misleading

By Paul Schott Stevens

August 10, 2012

The Securities and Exchange Commission (SEC) has finally delivered on Chairman Mary Schapiro’s June promise to give Congress data to back up her claim that money market fund sponsors “have voluntarily provided support to money market funds on more than 300 occasions.”

Read more…

TOPICS: Money Market Funds

Financial Times Column Mischaracterizes the Debate over Money Market Funds

By Paul Schott Stevens

August 1, 2012

We were disappointed to see how Gillian Tett’s recent Financial Times column (“The Achilles Heel of America’s Financial System”) mischaracterized the role of U.S. money market funds, the dramatic improvements resulting from the 2010 regulatory reforms, and the debate over further structural changes.

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TOPICS: Money Market Funds

Summing Up Investors’ Strong Support for Money Market Funds

By Paul Schott Stevens

July 26, 2012

In recent years, the discussion around money market funds has been as intense as it has been varied. Regulators have contemplated a wide range of reform proposals, in turn inspiring scores of citizens, organizations, businesses, and government officials to weigh in and share their views.

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TOPICS: Money Market Funds

Prime Money Market Funds’ Holdings Update—Eurozone Holdings Drop Close to December Levels

By Emily Gallagher and Chris Plantier

July 25, 2012

Prime money market funds reduced their holdings of eurozone issuers to 12.2 percent of assets in June from 15.5 percent of assets in May.

Read more…

TOPICS: Financial MarketsMoney Market Funds

Three Gaps in the FSOC’s Account of Money Market Funds in the Financial Crisis

By Paul Schott Stevens

July 25, 2012

Given money market funds’ critical role in the economy and markets, the policy discussion around these funds should be precise and should demonstrate a clear understanding of the facts.

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TOPICS: Financial MarketsMoney Market Funds

The NY Fed’s Study: A Pretty Blueprint for an Unworkable Idea

By Paul Schott Stevens

July 23, 2012

The financial press last Friday was full of headlines like the following: “NY Fed Report Advocates Limiting Some Money-Market Fund Withdrawals.” I had to stop and ask myself, “Why is this news?”

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TOPICS: Money Market Funds

New York Times Trips into the “Money Market Funds Are Banks” Trap

By Karrie McMillan

July 6, 2012

Floyd Norris’ column, “Money Market Funds and Their Allies Resist New Rules,” falls into the trap of concluding that money market mutual funds are banks. They’re not.

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TOPICS: Fund RegulationMoney Market Funds

Preserving Money Market Funds Is Good for Corporate America

By Sean Collins and Mike McNamee

July 5, 2012

A recent DealBook column about money market funds distorts the truth and omits essential facts. We’d like to correct the record and review a few key points that the DealBook author, law professor Steven M. Davidoff, seems to have missed.

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TOPICS: Money Market Funds

The Wall Street Journal Paints a False Picture of Money Market Funds

By Paul Schott Stevens

June 22, 2012

No one with actual expertise in the money market could recognize the false picture of money market funds that the Wall Street Journal paints in a recent editorial (“A History of Money Funds,” June 22).

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TOPICS: Financial MarketsMoney Market Funds

Is SEC Data Misleading the Public on Sponsor Support of Money Market Funds?

By Sean Collins

June 21, 2012

In her testimony at a hearing today before the Senate Banking Committee, Securities and Exchange Commission (SEC) Chairman Schapiro made this statement.

“Based on an SEC staff review, sponsors have voluntarily provided support to money market funds on more than 300 occasions since they were first offered in the 1970s.”

The SEC has not released its analysis, so we do not know precise dates or what exactly is being measured or counted. Nevertheless, we believe the estimate of 300 occasions is highly misleading.

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TOPICS: Money Market Funds

An Outcome for Money Market Funds That We Must Avoid

By Paul Schott Stevens

June 21, 2012

Today, I provided ICI’s views on the state of the money market fund industry at a hearing of the Senate Banking Committee, “Perspectives on Money Market Mutual Fund Reforms.” My message to legislators was clear: Persistently viewing money market funds through the narrow prism of 2008, regulators are advancing plans for structural changes that would destroy money market funds, at great cost to investors, state and local governments, business, and the economy. We must avoid this outcome.

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TOPICS: Financial MarketsMoney Market Funds

Money Market Fund Redemption Restrictions Would Drive Investors and Intermediaries Away from Money Market Funds

By Kathleen Joaquin

June 21, 2012

If you’re like most investors, money market funds mean stability, liquidity, and convenience.

Yet, some of these hallmark features could become a thing of the past if the Securities and Exchange Commission (­SEC) imposes redemption restrictions on money market funds.

How would these redemption restrictions work?

The SEC’s contemplated redemption restrictions would essentially deny investors full use of their cash by escrowing a portion of a shareholder’s money market fund account on an ongoing basis. In the unlikely event that the fund breaks the dollar, the restricted shares would then be used to absorb first losses.

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TOPICS: Fund RegulationMoney Market FundsOperations and Technology

What a Difference a Year Makes—Prime Money Market Funds’ Holdings Update

By Emily Gallagher and Chris Plantier

June 14, 2012

As the eurozone debt crisis began to intensify last summer, prime money market funds took steps to gradually reduce their overall holdings of eurozone issuers. 

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TOPICS: Financial MarketsMoney Market Funds

Forcing Money Market Funds to “Float”: Hurting Investors, Increasing Risk

Paul Schott Stevens

June 11, 2012

It’s rare to see the Wall Street Journal editorializing in favor of regulation for regulation’s sake.

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TOPICS: Financial MarketsFund RegulationMoney Market Funds

The Importance of Context in the Discussion Around Money Market Funds

By Karrie McMillan

May 31, 2012

In the debate around money market funds, we’ve seen too many instances of participants in the discussion taking positions or making assertions without properly putting things in context. This is troubling, because a poor sense of the big picture can increase the risk of bad policy outcomes for funds and investors.

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TOPICS: Financial MarketsMoney Market Funds

Prime Money Market Funds’ Eurozone Holdings Down 50 Percent over The Last Year

By Emily Gallagher and Chris Plantier

May 21, 2012

Securities of eurozone issuers accounted for 15.7 percent of assets of U.S. prime money market funds in April, up from 14.6 percent in March.

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TOPICS: Financial MarketsMoney Market Funds

Independent Directors and Trustees Deeply Concerned About More Changes to Money Market Funds

By Amy Lancellotta

May 9, 2012

As the SEC continues to consider flawed proposals that would have far-reaching consequences for money market funds, two groups representing mutual fund independent directors and trustees released a joint statement registering their deep concerns about any further changes to the regulation of these funds.

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TOPICS: Fund GovernanceMoney Market Funds

Rulemaking Must Reflect Realities of Funds’ Access to Shareholder Information

By Kathleen Joaquin and Tamara K. Salmon

April 30, 2012

We are seeing a troubling development in Washington. In high-profile areas such as money market funds and anti–money laundering measures, regulators continue to pursue rules premised on the notion that mutual funds know or can obtain detailed information on each of their underlying shareholders.

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TOPICS: Fund RegulationMoney Market FundsOperations and Technology

Data Update: Prime Money Market Funds’ Holdings

By Emily Gallagher and Chris Plantier

April 20, 2012

In October and December, we discussed how portfolio managers of U.S. prime money market funds have addressed the ongoing debt crisis in the eurozone. In February, we responded to commentators’ suggestions that U.S. prime money market funds’ increase in eurozone holdings in January reflected a renewed appetite for risk.

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TOPICS: Financial MarketsMoney Market Funds

Money Market Funds and Financial Stability: Reason and the Facts Must Guide Regulators

By Paul Schott Stevens

April 4, 2012

We are pleased to see that the Financial Stability Oversight Council continues to take a thoughtful approach on the issue of designating “systemically important financial institutions.” That’s in stark contrast to some commentators, who would have regulators rush to put money market funds under that designation. As ICI has argued in a number of venues, a “SIFI” designation is inappropriate for these funds and plainly would run counter to facts and reason. Let’s review why.

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TOPICS: Financial MarketsMoney Market Funds

What Happens If ‘Floating’ Funds Don’t Float?

By Jane Heinrichs and Greg Smith

March 29, 2012

Some recent coverage—including the CFOJournal blog of the Wall Street Journal—suggests that worries about the impact on investors of forcing money market funds to float their net asset value (NAV) may be overblown. The story goes like this: the mark-to-market prices of money market funds, and the experience of a few money market funds that already operate with a floating NAV, show that fluctuations in the “floating” value would be minuscule—rarely large enough to change the penny-rounded per-share price of the fund. So if floating funds don’t float, what’s the harm?

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TOPICS: Financial MarketsFund RegulationMoney Market Funds

Bringing Money Market Funds’ European Investments into Focus

By Brian Reid

March 21, 2012

In his written testimony on Capitol Hill today, Federal Reserve Board Chairman Ben Bernanke created a fuzzy and incomplete picture of money market funds and their investments in European-headquartered financial institutions. Whether by intent or not, the Fed testimony left the impression—magnified by media accounts—that these funds have a unique and substantial vulnerability to any future turmoil in overseas markets.

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TOPICS: Financial MarketsMoney Market Funds

Money Market Funds: Let’s Stick to the Facts

By: Brian Reid

March 6, 2012

As a banking regulator who was in office during the worst banking crisis since the Great Depression, Sheila Bair knows that banks and money market funds are not the same. Yet in her recent Huffington Post piece, Bair blurs vital distinctions in an effort to convince the reader that money market funds are in fact extremely risky banks—and thus need a stiff dose of banking regulation.

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TOPICS: Fund RegulationMoney Market Funds

The Honest Truth About Forcing Money Market Funds to Float

By Brian Reid

February 29, 2012

Advocates for further regulation of money market funds string together a loose chain of arguments to create the impression that money market funds are bank products, rather than investment securities. From this, they conclude that these funds need bank-like regulation. Sallie Krawcheck’s commentary in today’s Wall Street Journal is the latest effort in this campaign.

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TOPICS: Fund RegulationMoney Market Funds

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.

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TOPICS: Fund RegulationMoney Market Funds

Prime Money Market Funds’ Eurozone Holdings Remain Low

By Emily Gallagher and Chris Plantier

February 23, 2012

Securities of eurozone issuers accounted for 14.0 percent of assets of U.S. prime money market funds in January, up from 11.9 percent in December (chart). This increase was driven by a rise in French assets (up from 3.2 percent to 4.6 percent) and by a rise in asset holdings of other eurozone issuers (up from 8.7 percent to 9.4 percent).

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TOPICS: Financial MarketsMoney Market Funds

A Bad Diagnosis Could Be Fatal for Money Market Funds

By Paul Schott Stevens

February 13, 2012

Bad diagnosis leads to bad prescriptions—and the errors can be fatal. The Wall Street Journal’s lead editorial today, “Money Fund Make-Over,” falls into that trap.

The Rx of this editorial is premised on the notion that money market fund investors don’t understand that they’re just that—investors. Yet every fund’s prospectus provides a clear description of all risks and rewards associated with the fund. No fund offers any expectation of an explicit or implicit guarantee by the fund sponsor or the U.S. government. That message is repeated in virtually every communication from money market funds to investors.

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TOPICS: Fund RegulationMoney Market Funds

The SEC’s Money Market Fund Plans—Scoring a Hat Trick Against Investors and the Economy

By Paul Schott Stevens

February 7, 2012

The Wall Street Journal reports today that the Securities and Exchange Commission (SEC) continues to pursue regulatory changes for money market funds that will harm investors, damage financing for businesses and state and local governments, and jeopardize a still-fragile economic recovery. Quite a regulatory hat trick.

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TOPICS: Fund RegulationMoney Market Funds

Data Update 2: Money Market Funds and the Eurozone Debt Crisis

By Emily Gallagher and Chris Plantier

January 13, 2012

In October and December, we discussed how portfolio managers of U.S. prime money market funds have addressed the ongoing debt crisis in the eurozone. Here is a look at the latest monthly data on these funds’ holdings by home country of issuer. Holdings of French issuers continued to fall in December, and almost 80 percent of these French holdings are either short-dated collateralized repurchase agreements or other instruments that mature in seven days or less.

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TOPICS: Financial MarketsMoney Market Funds

Money Market Funds Continued to Reduce Eurozone Holdings in November

By Sean Collins and Chris Plantier

December 16, 2011

Over the last year, U.S. money market funds have significantly reduced their holdings of debt securities issued by banks and other businesses headquartered in the 17 countries that use the euro as their currency. That trend continued in November.

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TOPICS: Financial MarketsMoney Market Funds

Time to Stamp Out the Confusion Around ‘Shadow Banking’

By Brian Reid

December 6, 2011

In the United States, money market funds are governed by tight risk-limiting rules, rules that have become considerably tighter since 2008. The Securities and Exchange Commission (SEC) has indicated further changes are forthcoming.

Yet some recent commentary and reporting on money market funds misses this fact, substituting instead the vague notion that these funds lurk in a seemingly unregulated world of “shadow banking,” an epithet used to debase a large group of nonbank financial intermediaries and activities. A recent Wall Street Journal column, for example, characterized money market funds as “one of the riskiest participants in shadow banking.” Last May, a Reuters story described shadow banking as “a network of loosely regulated private equity, hedge, and money funds that together are large enough to topple the global financial system.”

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TOPICS: Financial MarketsFund RegulationMoney Market Funds

Data Update 1: Money Market Funds and the Eurozone Debt Crisis

By Sean Collins and Chris Plantier

December 2, 2011

In October, we discussed how portfolio managers of U.S. prime money market funds have addressed the ongoing debt crisis in the eurozone. Here is a look at the latest monthly data on these funds’ holdings by home country of issuer. We will revisit the topic in mid-December with updated analysis once November figures become available.

Read more…

TOPICS: Financial MarketsMoney Market Funds

The Volcker Illusion: Why Bank Regulation Won't Work for Money Market Funds

By Paul Schott Stevens

October 24, 2011

The Volcker Illusion: Why Bank Regulation Won't Work for Money Market Funds

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TOPICS: Fund RegulationMoney Market Funds

The Facts Missing From a Wall Street Journal Column on Money Market Funds

By Mike McNamee

October 18, 2011

Misinformation lurks in a recent column from Wall Street Journal Money & Investing editor Francesco Guerrera, “Hidden Dangers Lurking in Money Market Funds.” Given the vital role that money market funds play in our economy, regulators and investors alike need the best information possible on this topic. So let’s correct the record with a few key facts.

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TOPICS: Fund RegulationMoney Market Funds

Money Market Funds’ Prudent Response to European Challenges

By Sean Collins and Chris Plantier

October 14, 2011

The ongoing debt crisis in the eurozone poses challenges for portfolio managers of U.S. prime money market funds, as those managers actively continue to adjust their holdings to meet new developments. The latest monthly data on money market funds’ holdings demonstrate that these funds are carefully managing their risks in Europe, and have been gradually reducing eurozone holdings for some time now.

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TOPICS: Financial MarketsMoney Market Funds

Déjà vu—U.S. Money Market Funds and the Eurozone Debt Crisis

By Chris Plantier and Sean Collins

September 12, 2011

In June, we wrote about the indirect exposure that U.S. prime money market funds have to European sovereign debt, especially Greek debt, through their holdings of securities issued by European banks. At that time, we noted that these funds had no direct exposure to Greek sovereign debt, and that they were managing their indirect exposure by constantly examining the quality of their portfolio and the creditworthiness of investments. By July 1, we could report that U.S. prime money market funds had no direct exposure to Portuguese or Irish government or bank debt.

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TOPICS: Money Market Funds

The Lingering Threat of Floating NAVs

By Mike McNamee

August 5, 2011

Despite widespread opposition from dozens of business, municipal, and investors groups, regulators continue to ponder the question of whether money market funds should be required to abandon the stable $1.00 net asset value (NAV) in favor of a floating NAV.

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TOPICS: Fund RegulationMoney Market Funds

The Debt Ceiling Debate and Its Impact on Money Market Funds

By Chris Plantier and Sean Collins

August 4, 2011

Data on money market funds flows continue to draw attention, especially with today’s report that net outflows totaled $66 billion in the week ending August 3.

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TOPICS: Money Market Funds

It’s Highly Unlikely that Money Market Funds Will ‘Break the Dollar’ in U.S. Debt Crisis

By Chris Plantier and Sean Collins

July 29, 2011

The continuing impasse over the U.S. government’s borrowing limit—the “debt ceiling”—and efforts to rein in the growth of federal debt has raised many questions for investors in all types of financial assets. ICI believes that money market funds are no more vulnerable to these events than other assets: As ICI Chief Economist Brian Reid wrote yesterday, “I don’t know of any scenario in which money market funds would be disproportionately affected compared to other market participants by a failure to raise the debt ceiling.”

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TOPICS: Money Market Funds

What’s Happening with Recent Money Market Fund Flows?

By Brian Reid

July 28, 2011

Statistics on money market funds inflows and outflows are currently a hot topic in the financial world, so it’s a good time to dig into the data and see if we can help explain the latest trends.

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TOPICS: Money Market Funds

Debt Ceiling Scenarios: ICI Addresses Key Questions Regarding Possible Impact on Money Market Funds

By Karrie McMillan and Brian Reid

July 20, 2011

As Paul Schott Stevens wrote on ICI Viewpoints earlier, a downgrade or default of U.S. Treasury securities would have grave implications for investors, markets, and economies around the world. This prospect raises a number of questions for funds and their shareholders, particularly for money market funds. We’ve prepared a set of “frequently asked questions,” focused on money market funds, to further address the key issues and dispel some of the uncertainty produced by this unprecedented policy situation.

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TOPICS: Money Market Funds

Let’s Preserve America’s Financial Standing in the World

By Paul Schott Stevens

July 18, 2011

The impasse between Congress and the Administration over increasing the U.S. Treasury’s borrowing limit and dealing with long-term budget deficits has raised many questions about the impact on American investors and investments, including mutual funds. At ICI, we share the deep concern that many feel about policy actions that could undermine the full faith and credit of the U.S. government.

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TOPICS: Financial MarketsMoney Market Funds

Dispelling Misinformation on Money Market Funds

By Brian Reid

July 1, 2011

The ongoing attention to U.S. prime money market funds’ exposure to the debt crisis in Greece has brought three questions to the fore:

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TOPICS: Money Market Funds

Before Congress, an Outpouring of Support for Money Market Funds

By Mike McNamee

June 28, 2011

Groups representing businesses and government officials from across the country recently sent a message to Congress: policymakers should preserve the fundamental features of money market funds. The occasion was last week’s hearing, “Oversight of the Mutual Fund Industry: Ensuring Market Stability and Investor Confidence,” held by the House Financial Services Committee’s Subcommittee on Capital Markets and Government Sponsored Enterprises.

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TOPICS: Money Market Funds

Wall Street Journal Editorial Gets It Wrong Again on Money Market Funds

By Mike McNamee

June 27, 2011

The Wall Street Journal posted another misleading editorial on money market funds. ICI President and CEO Paul Schott Stevens has submitted a letter to the editor in print and online to respond. Here is the text of his submission:

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TOPICS: Money Market Funds

Money Market Funds and European Debt: Setting the Record Straight

By Sean Collins and Chris Plantier

June 20, 2011

Recent events in Greece have drawn the media’s attention to indirect exposure that U.S. money market funds may have to European sovereign debt through their holdings of securities issued by European banks.

Read more…

TOPICS: Money Market Funds

Money Market Funds: Four Key Points

By Mike McNamee

May 10, 2011

Later today, the Securities and Exchange Commission will hold a roundtable on money market funds and systemic risk. ICI Chief Economist Brian Reid will be one of the panelists at the roundtable, which should be an interesting discussion. Ahead of that discussion, here are four key points worth keeping in mind.

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TOPICS: Fund RegulationMoney Market Funds

Wall Street Journal Editorial Ignores “Economic Disruption” of Floating the Value of Money Market Funds

By Ianthe Zabel

May 9, 2011

The Wall Street Journal’s lead editorial today used a flawed analysis to mischaracterize money market funds and the recent efforts to make them more resilient in extreme market conditions. ICI President and CEO Paul Schott Stevens has submitted a letter to the editor in print and online to respond. 

Read more…

TOPICS: Fund RegulationMoney Market Funds

ICI Suggests Fixes for Proposal to Eliminate Ratings Requirement from Money Market Fund Rules

By Jane G. Heinrichs

April 27, 2011

Unintended and undesirable consequences could result from a Securities and Exchange Commission proposal to eliminate credit ratings as a required element in determining which securities are permissible investments for money market funds. In a recent comment letter, we suggested a few ways that the SEC can change its proposal to head off these unintended consequences.

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TOPICS: Money Market Funds

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.

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TOPICS: Money Market Funds

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.

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TOPICS: Fund RegulationMoney Market Funds

“Systemically Important” Designation is a Tool That Should Be Used Sparingly

By Paul Schott Stevens

February 25, 2011

This morning, I participated in a panel discussion addressing the business community’s concerns with the Financial Stability Oversight Council’s (FSOC) proposal on the criteria to measure a company’s systemic risk. It was a lively and timely conversation; I wanted to share here some of the perspective that I brought to the panel on behalf of ICI.

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TOPICS: Financial MarketsFund RegulationMoney Market Funds

In Case You Missed it: ICI Members Speak Out on Money Market Funds

By Mike McNamee

February 16, 2011

In recent weeks, two top newspapers have published commentary from ICI members who make a compelling case for preserving the fundamental strengths of money market funds. We’ve pulled out a few highlights below, but both items are worth reading in their entirety.

Read more…

TOPICS: Money Market Funds

New ICI Research Examines Money Market Funds’ Pricing

By Rochelle L. Antoniewicz and Sean S. Collins

January 25, 2011

Today, we released new research, Pricing of U.S Money Market Funds. This paper starts by explaining how U.S. money market funds seek to maintain a stable $1.00 per share net asset value (NAV). The NAV is the price at which investors purchase or redeem shares.

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TOPICS: Fund RegulationMoney Market Funds

ICI’s Response to “Money Market Fund Reform Options”

By Jane G. Heinrichs

January 11, 2011

We’ve just filed a comment letter with the Securities and Exchange Commission addressing the reform options outlined in the President’s Working Group on Financial Markets (PWG) Report on “Money Market Fund Reform Options.”

Read more…

TOPICS: Fund RegulationMoney Market Funds

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