While some of the biggest providers of money market mutual funds have come out in support of the Securities and Exchange Commission's seismic reforms to the institutional side of the market, others are far from pleased.
The U.S. Chamber of Commerce made opposition to the new floating net asset value rule a top policy priority.
David Hirschmann, the president of the Chamber's Center for Capital Markets Competitiveness, says the "floating NAV" rule will not address the potential for a run on money-market funds, as the SEC intends the rule to do.
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"A floating NAV doesn't address run risk and would severely if not irreparably harm the viability of the product, taking away a key cash management product and a primary source of funding for the commercial paper market," said Hirschmann in a release after Wednesday's vote.
"Companies that invest in money funds or that rely on money funds to buy their short-term debt will be forced to find alternate, higher cost sources of short-term financing and investment."
Throughout the several-year debate over institutional money market reform, the Chamber was part of a vocal group of former regulators, federal, state and local politicians, fund-industry advocates like the Investment Co. Institute, and major pension funds that warned of the destructive toll reforms will have on the institutional investors and companies that rely on money-market funds for cash preservation and liquidity.
"The Chamber and thousands of others warned about the impact of a floating NAV," wrote Hirschmann. "The mere possibility of this outcome caused many companies to move their investments to other less efficient products. With this final rule, it is highly likely that the trend will continue as treasurers face significant operational challenges, higher costs and less flexibility."
The reforms were a result of the 2008 financial crisis. In one week, $300 billion was pulled from institutional money market funds, or 14 percent of assets in all money market funds (institutional and retail).
The Treasury Department ultimately stepped in to backstop money-market funds, effectively bailing-out short-term corporate debt markets.
SEC Chair Mary Jo White said the reforms fundamentally change the way money-market funds operate.
"They will reduce the risk of runs in money-market funds and provide new tools that will help further protect investors and the financial system," said White after the vote, which narrowly broke in favor of reform by a 3-2 margin.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
