Money Fund Rules Questioned

House Financial Services Committee chair urges SEC’s Schapiro to rethink money fund regs.

House Financial Services Committee Chairman Spencer Bachus is urging Securities and Exchange Commission Chairman Mary Schapiro to rethink her approach to rules for the money-market fund industry.

In a letter to Schapiro dated yesterday, Bachus said he was unsure why the agency should spend time considering rules for money-market funds when the SEC has struggled to meet deadlines to implement rules mandated by the 2010 Dodd-Frank Act.

“Given that the SEC has already missed numerous deadlines for mandatory rule-makings, the suggestion that the agency is devoting time and resources to a discretionary rule without providing Congress or the public with empirical data and economic analysis to justify such a rule-making raises significant questions regarding the Commission’s priorities,” Bachus wrote.

The letter was also signed by Representative Jeb Hensarling, a Texas Republican who is vice chairman of the financial services panel.

SEC spokesman John Nester declined to comment on the letter. As a general matter, Nester said in an e-mail, the SEC is “committed to rigorous economic analysis in any rule-making the Commission may consider.”

Schapiro has said regulators must tighten oversight of money-market funds because a run on the industry could damage the economy. She hasn’t been able to convince a majority of her colleagues on the five-member commission that they should approve new rules that could include capital requirements or a change to the industry’s traditional $1 share price.


Removing Risk

Bachus and Hensarling wrote that it’s not the SEC’s job to remove risk from investments.

“We would also like to remind you that the SEC’s mandate is to ensure that investors have all of the material information about an investment, not to engineer investments so that they are free of any risk,” the lawmakers wrote. “If investors do not understand that their investments in money-market funds can result in losses, then the Commission should use its existing authority to enhance disclosures rather than change the fundamental characteristics of money-market funds.”

Concern over money funds, once seen as among the safest of investments, grew after the September 2008 collapse of the $62.5 billion Reserve Primary Fund, which triggered a broader run that contributed to a freeze in global financial markets. The SEC adopted rules in 2010 that introduced liquidity minimums, average maturity limits and new disclosure requirements.

Money-market funds have fought any additional regulation. Christopher Donohue, the chief executive officer of Pittsburgh- based Federated Investors Inc., the third-biggest U.S. money- fund provider, said Jan. 27 that his firm would sue the SEC if it went forward with a proposed rule.



Bloomberg News

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