It appears the SEC has closed its comment period on a number of rulemakings, including Money Market Fund Reforms, after a brief reopening. (See our Oct. 11 Link of the Day, "SEC Reopens Comments on Reforms.) The notice of the reopening, which was announced on October 10, and was published in the Federal Register on October 18, so the 2-week extra comment period extension ended Nov. 1. There were few substantial additions to the SEC's "Comments on Money Market Fund Reforms" page, though Federated Hermes added a couple posts. Thus, it appears the final money fund reform proposal could be back on track for release before the end of the year.
The earlier mysterious press release, "SEC Reopens Comment Periods for Several Rulemaking Releases Due to Technological Error in Receiving Certain Comments," explains, "The Securities and Exchange Commission today reopened the public comment periods for 11 Commission rulemaking releases and one request for comment due to a technological error that resulted in a number of public comments submitted through the Commission's internet comment form not being received by the Commission. The majority of the affected comments were submitted in August 2022; however, the technological error is known to have occurred as early as June 2021. To ensure that interested persons, including any affected commenters, have the opportunity to comment on the affected releases or to resubmit comments, the Commission is reopening the comment periods for the affected releases until 14 days following publication of the reopening release in the Federal Register."
Though almost all of the new comments were from bots or internet crazies, Federated Hermes CEO Chris Donahue posted a Sept. 22 letter to SEC Commissioner Jaime Lizárraga. It explains, "Thank you for taking the time to join us on a call.... We understand how busy things are for you and your staff and very much appreciate having the opportunity to provide you with information on the important role money market funds ('MMFs') play in our short-term markets and the significant benefits they provide to US investors and issuers. MMFs have provided retail investors in prime MMFs over $200 billion in estimated incremental returns over bank accounts since the 1990's, and in the current rising rate environment will continue to provide significant increased returns to everyday Americans. This is but one reason why it is imperative that any potential reform to MMFs be supported by sound quantitative data. New reforms should enhance the safety and stability of MMFs and should neither create a new bright line trigger, which will improperly incentivize investors to redeem from MMFs, or lead to a material, and entirely unnecessary, reduction in the US Government MMFs market."
Donahue continues, "I have set forth below for your convenience a summary of my four key points outlined at the onset of our conversation. 1. Swing Pricing is a plague on MMFs. It will finish off the task of regulating institutional prime MMFs out of existence. One trillion was taken out during the last round of changes and the remaining 300 billion will be largely taken out with swing pricing. 2. Discretionary fees and gates are a much better answer as opposed to swing pricing. Ensuring fund boards have lots of tools in the toolbox is the best way to enhance the resilience of MMFs. It has been endorsed by global regulators, including the FSB. Fund boards have, and will continue to, exercise their fiduciary duty, even in stressed markets. And please do not forget the Fed received 1% on all of the $53 billion of transactions and took no principal risk."
It continues, "3. Simply fixing the mistaken linkage of 30% liquidity with fees and gates is the best thing to do and the only fix supported by data. Please do not create another threshold mistake. Fix the problem and declare victory. 4. Forget requiring intermediaries to have the capacity to redeem and sell shares based on a four-digit NAV because of the remote possibility of negative rates. This will simply have the effect of eliminating at least $2 trillion dollars of sweeps in government funds because the clients, as before, will choose not to retool. The result will be more dollars in low yield deposit products. Moreover, there is an established alternative to requiring government funds to move to a four-digit NAV which will not be disruptive to investors or markets. It is the use of a 'reverse distribution mechanism' or 'RDM' for short, a method which was successfully used in Europe in a period of negative rates. At a minimum, the SEC should allow the use of a RDM as an alternative to requiring intermediaries to be capable of transacting at a four-digit NAV for all MMFs."
In related news, yesterday's Wall Street Journal contained an editorial from ICI President Eric Pan entitled, "The SEC's Rules Are Getting Unreal." Pan writes, "The Securities and Exchange Commission's job is to make markets work. But today's SEC leadership -- which as of August had proposed 26 new rules this year alone -- is ignoring the real-world effects of its regulations on market participants. Its approach can be described as 'regulation by hypothesis.' If not remedied, it will prove disastrous."
He comments, "Examples of this pedantic approach to regulation abound. Take the SEC's current rule proposal on money-market funds, which would require certain institutional money market funds to 'swing,' or adjust the fund's net asset value in the event of net redemptions. Swing pricing would remove features that investors value, such as same-day settlement and multiple net-asset-value strikes per day, and impose unpredictable costs. It may sound good in theory, proposing a way to charge investors leaving a fund, but in reality it will fundamentally alter the product, making it unattractive to investors and forcing sponsors to close and stop offering the funds. So much for healthy capital markets."
Pan also says, "It doesn't end there. The SEC has proposed an unworkable expansion of the rule regarding fund names. It is demanding that funds reduce subjective investment strategies, like growth and value, into a handful of words in a name, supported by an 80% investment policy rather than being recognized as an overall fund portfolio-management objective. This would require funds to redesign systems, purchase new data, rework system interfaces and hire staff to monitor compliance with that 80% investment policy."
He adds, "The commission itself admits that this system would be outrageously expensive to implement, with its own economists estimating an individual fund would need to pay anywhere from $50,000 to $500,000 to comply with the rule. These costs would be passed on to investors in the more than 10,000 funds across the U.S. History has shown that an expert SEC can protect investors and enhance our capital markets. We need today's SEC to show it still has the expertise to develop rules that address real problems and work in the real world. An SEC that treats regulation as an academic exercise, in which benefits are theoretical and costs are irrelevant, is a danger to all of us."
In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Oct. 28) includes Holdings information from 42 money funds (down 29 from a week ago), which represent $1.103 trillion (down from $2.059 trillion) of the $5.054 trillion (21.8%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $662.6 billion (down from $1.162 trillion a week ago), or 60.1%; Treasuries totaling $305.9 billion (down from $577.4 billion a week ago), or 27.7%, and Government Agency securities totaling $81.1 billion (down from $141.7 billion), or 7.4%. Commercial Paper (CP) totaled $23.2 billion (down from a week ago at $67.5 billion), or 2.1%. Certificates of Deposit (CDs) totaled $7.9 billion (down from $36.0 billion a week ago), or 0.7%. The Other category accounted for $17.5 billion or 1.6%, while VRDNs accounted for 4.8 billion, or 0.4%.
The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $499.0 billion (45.2%), the US Treasury with $305.9 billion (27.7% of total holdings), Federal Home Loan Bank with $42.4B (3.8%), Federal Farm Credit Bank with $35.1B (3.2%), Fixed Income Clearing Corp with $20.6B (1.9%), JP Morgan with $18.8B (1.7%), Barclays PLC with $11.8B (1.1%), RBC with $11.8B (1.1%), Mitsubishi UFJ Financial Group Inc with $10.4B (0.9%) and Nomura with $9.0B (0.8%).
The Ten Largest Funds tracked in our latest Weekly include: Morgan Stanley Inst Liq Govt ($136.8B), Dreyfus Govt Cash Mgmt ($116.3B), Allspring Govt MM ($103.2B), Street Inst US Govt ($97.7B), First American Govt Oblg ($76.7B), Invesco Govt & Agency ($69.6B), HSBC Inv US Govt Money Mkt ($53.8B), Morgan Stanley Inst Liq Treas Sec ($50.4B), State Street Inst Treasury Plus ($47.0B) and Dreyfus Treas Sec Cash Mg ($44.8B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
