Securities and Exchange Commission Chairman Mary Schapiro has called attention to the structural weakness in money market funds. There are fears the $3 trillion industry poses systemic risks.
“Funds remain vulnerable to the reality that a single money-market fund breaking of the buck could trigger a broad and destabilizing run,” Ms. Schapiro said in a WSJ.com report, warning that the tools federal regulators used to bail out the industry in 2008 are no longer available. “Today, the money-market fund industry and, by extension, the short-term credit market, is working without a net.” [Breaking the Buck: Money Funds and ETF Investors]
So far, The SEC has been working on two solutions to make change to the money market industry. The goal is to create stability for the funds after some broke the buck in the financial crisis and contributed to the freeze in global credit markets, reports Jesse Hamilton for Bloomberg.
The SEC has already put tighter regulations upon the money market industry, including new liquidity requirements, shorter maturity limits, and enhanced disclosure mandates. Further re-working of the fund rules will be put in place, as Schapiro’s speech indicated back in November. [Why Vanguard Founder Bogle Doesn’t Like ETFs]
The drawback is that any more structural changes or tighter rules could potentially reduce already low returns for many investors, reduce liquidity if a crisis were to occur or reduce investor confidence, reports Andrew Ackerman for The WSJ. Furthermore, three out of five of fellow commissioners of Schapiro are reluctant to support further industry overhaul. [Simple and Exponential Moving Averages]
Tisha Guerrero contributed to this article.