Money market fund regulations need to be revamped quickly to fix the funds’ inherent vulnerability to runs, said U.S. Securities and Exchange Commission Chairman Mary Schapiro.
“I do feel a sense of urgency about the structural weaknesses that exist in money market funds,” Schapiro said today at a Washington breakfast with reporters sponsored by the Christian Science Monitor. The SEC has been working on two possibilities to change aspects of the $2.6 trillion money funds industry that make them “prone to runs,” she said, with the agency considering either a departure from the traditional $1 share price or mandating capital cushions.
Regulators have debated how to make the funds more stable since the 2008 collapse of the $62.5 billion Reserve Primary Fund, which triggered an industry-wide run by clients that helped freeze global credit markets. The agency enacted changes two years later in an attempt to prevent runs, including new liquidity requirements, shorter maturity limits and enhanced disclosure mandates.
Schapiro said in a November speech that the agency would soon propose revamping fund rules. The commission hasn’t yet voted on a proposal. Republican Commissioner Daniel M. Gallagher has stated that the agency should hold off on such an overhaul.
When asked today whether more than 16,000 comment letters will force regulators to re-propose the so-called Volcker rule’s ban against banks’ proprietary trading, Schapiro said it depends on “how much the rule changes.” The statute is set to go into effect in July, and Schapiro said she doesn’t know whether the rulemaking will be complete by then.
The agency has also been working on structural changes to the equity markets in the wake of the May 6, 2010, crash that erased $862 billion from equities in less than 20 minutes before rebounding. Schapiro said the overhaul, which saw the addition of exchange circuit breakers, is now awaiting a better understanding of market activity.
“We don’t have enough data yet to really be able to justify significant additional steps at this point,” Schapiro said. The new system instituted by the SEC to track the trading of the most active market participants should collect information that will “be critical to our ability to justify further changes,” she said.
Schapiro also said today that she expected 85 percent of failed brokerage MF Global Inc.’s former securities customers will be “paid in full.” The liquidation of the bankrupt New York-based firm should return most of those funds from about 320 securities accounts, she said, which represented a fraction of the brokerage’s commodities-focused business.