Will Proposed Money Market Rules Mean Abandonment?
April 20th 2012 at 4:30pm by Tom Lydon
The Securities and Exchange Commission (SEC) is researching the reformation of money market funds in the attempt to prevent another financial panic. However, U.S. Treasurers stated their intent to leave money market funds if the SEC goes through with its plans.
According to an Investment Company Institute note, Treasury Strategies, Inc., conducted a survey, Money Market Fund Regulations: The voice of the Treasurer, and found that the majority of corporate treasurers would either reduce their use of money market funds or eschew them altogether if the SEC either floats the net asset value (NAV), imposes a redemption holdback scheme or forces capital requirements. [Breaking the Buck: Money Market Funds and ETF Investors]
Investors and large institutions utilize money market funds as a cash equivalent since they provide low cost and low risk options for those seeking to move around cash allocations.
The study found that 79% of respondents would decrease or discontinue their use of money market funds if the funds were required to float their NAV; while 69% of corporate money market fund assets would shift to other investments. If money market funds were required to follow a 30-day holdback of 3% of total redemptions, 90% of those surveyed would decrease or discontinue their use and 67% of corporate money market fund assets would move to other investments. Lastly, if money markets funds were required to maintain a reserve or capital buffer, 64% would not decrease or discontinue their use, but of that number, 84% would stop their use altogether if the capital buffer would diminish yields by 5 basis points. [Money Market Funds Face Uncertainty]
“The large cross section of treasurers surveyed gives this report the ‘voice of the treasurer’ – a voice that spoke out with an overwhelmingly negative response to each reform concept,” Cathy Gregg, a Partner at Treasury Strategies, said in the note.
“The message from treasurers is clear. While they value money funds, they will simply abandon the instrument should any of these concepts be adopted. The potential implications of such a widespread run away from money funds are staggering.” Gregg, added. [PIMCO ETF is Alternative to Money Market Funds]
Treasurers account for $1.7 trillion in institutional share classes, or 65%, of the $2.7 trillion money market space.
For more information on the money markets, visit our money markets category.
Max Chen contributed to this article.
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