WASHINGTONSecurities and Exchange Commission Chairman Mary Schapiro on Friday called again for changes on money market funds, warning that the nearly $3 trillion industry is vulnerable without additional steps to curtail systemic risks.
Another, more complicated, option would require money fund sponsors to set aside additional capital to absorb losses on money fund investments, as well as hold back 3 5 percent of an account holder’s money for 30 days to discourage runs.
“In particular, we continue to believe that proposals suchas floating (net asset value), imposing onerous capitalrequirements or adding burdensome redemption restrictions willultimately destroy the money market fund industry,” Fidelitysaid.
Trading in the money markets involves Treasury bills, commercial paper, bankers’ acceptances, certificates of deposit, federal funds, and short lived mortgage- and asset backed securities.
“The demise of money market funds would remove importantshort term financing capacity form the markets, inevitablyresulting in less credit extension that would impact businesseslarge and small,” Fidelity said.
The SEC wants to make sure that money fund investors understand this.
One reform the SEC is considering would require shares in money funds to float in value as do other types of mutual funds.
Fidelity’s letter to the SEC stressed that reforms the SECput in place in 2010 after the credit crisis has mademoney market funds stronger and more liquid than ever.
Both companies say the funds’ ability to survive investorwithdrawals last summer during the European sovereign debtcrisis shows their new resilience.
In fact, money funds have lost value repeatedly in the past, but customers did not see it because the funds’ parent companies stepped in with their own cash to make up for the losses.
Ciaran Song is a business journalist based in Seoul, Korea. Ciaran has a passion for financial markets and breaking news stories and loves writing about business news, stock market, and economic opinions that matters most to its audience. Ciaran spends a lot of time discovering and researching latest financial markets and industry news stories in order to make sure the latest and greatest stories are brought to you first on BigBoardNews.com.