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MFDF - Mutual Fund Directors Forum - Schapiro Discusses Money Market Reform - Capital Buffer and Floating NAV

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Schapiro Discusses Money Market Reform - Capital Buffer and Floating NAV

SEC Chairman Mary Schapiro recently indicated that the SEC may propose money market fund reforms in the next several months.  The leading candidate for reform appears to be requiring money market funds to have a capital buffer, possibly with redemption restrictions.  The SEC is still considering the appropriate size of any buffer and whether the capital would come from the fund's sponsor, the fund's shareholders, or the market (through the issuance of debt or a subordinated security).  Chairman Schapiro noted the challenges of establishing a capital buffer that "offers meaningful protection against unexpected events, without over-protecting and unnecessarily interfering with the prudent and efficient portfolio management of the fund."  She also admitted that there are challenges in developing and implementing money market reforms in a low or nearly "no" interest rate environment.

Chairman Schapiro also stated that the SEC is still considering a floating NAV proposal.  However, she admitted that this option would essentially end money market funds as we know them and deprive investors' access to a stable NAV product that has met many of their needs.  She also noted that floating the NAV poses challenges to policymakers, "particularly in fostering an orderly transition from stable NAVs to floating NAVs."

The Forum has previously opposed radical changes to money market funds and looks forward to continuing its participation in the ongoing discussion.