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The US Securities and Exchange Commission (SEC) has requested industry comment on potential reform measures to improve the resilience of money market funds (MMFs) following the pandemic-inspired market stress last year.
The market consultation builds on issues raised in a report by the President's Working Group on Financial Markets (PWG) published in December 2020 which looked into the March volatility in short-term funding markets and posed possible rule changes to avoid a repeat of the liquidity crunch.
The PWG says it recognises the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of its nation's financial markets and maintaining investor confidence.
The SEC is requesting public comment on the report, including a critique of the effectiveness of the previously-enacted MMF reforms and of implementing the potential policy measures described in the report.
The report provides an overview of prior MMF reforms in 2010 and 2014, as well as how different types of MMFs have evolved since the 2008 financial crisis.
It concludes that the events of March 2020 show that more work is needed to reduce the risk that structural vulnerabilities in prime and tax-exempt MMF will exacerbate or lead to stresses in short-term funding markets.
According to Dalia Blass, SEC director of the division of investment management, the report discusses various reform measures that policy makers could consider to improve the resilience of prime and tax-exempt MMFs and broader short-term funding markets.
As noted in the report, many of the measures discussed could be implemented by the SEC under its existing statutory authority, while others may require longer-term structural changes and coordinated action by multiple agencies.
The report’s authors do not endorse specific recommendations for future reforms. Instead, they say, it is meant to provide context and facilitate discussion by outlining potential reform options.
Commenters are also invited to discuss other topics that are relevant to potential MMF reforms, including other approaches to reform, as well as empirical data and other information in support of their comments.
The public comment period will remain open for 60 days from the 4 February 2021 following publication of the comment request in the federal register.
SEC acting chair Allison Herren Lee says: “MMFs play a significant role in our short-term funding markets, and they are utilised by both large institutions and individual retail investors.
“Comments received will assist the SEC and other relevant financial regulators in further analysis of potential reforms.”
