SIFMA AMG and the Investment Company Institute (ICI) provided comments to the U.S. Securities and Exchange Commission (SEC) on the…
April 12, 2021
Vanessa A. Countryman
Securities and Exchange Commission
100 F Street, NE
Re: Potential Reform Measures for Money Market Funds (File No. S7-01-21)
Dear Ms. Countryman:
The Asset Management Group of the Securities Industry and Financial Markets Association (“SIFMA AMG”)1 respectfully submits this comment letter to the U.S. Securities and Exchange Commission (the “Commission”) with respect to the Commission’s request for comment on potential reform measures for money market funds, as highlighted in the Report of the President’s Working Group on Financial Markets dated December 2020 (the “Report”).2 We appreciate the opportunity to provide our views to the Commission on these matters that have the potential to impact not only the direct regulation of money market funds, but also the overall functioning of the short-term funding markets.
Our comments focus on the following main points:
1. The important role of money market funds and the effectiveness of previously enacted reforms to money market funds. Money market funds play an important role in the orderly functioning of the short-term funding markets and serve valuable financial and economic functions for a variety of investors (including both retail and institutional investors) and the capital markets more broadly. Policy measures that have the effect of eliminating or significantly decreasing the size of the prime, retail, and tax-exempt money market fund sectors will significantly impair the resilience and orderly functioning of the short-term funding markets. As a result of reforms adopted after the global financial crisis, money market funds proved more liquid, resilient, and able to handle the stresses of March 2020. These prior reforms helped ensure all types of institutional and retail money market funds, including government, prime, and tax-exempt money market funds, were able to successfully manage the unprecedented liquidity challenges in March 2020 and provide investors with daily liquidity and meet 100% of redemptions. Certain aspects of the reforms adopted in 2014, mainly the linking of levels of liquidity with the ability to impose liquidity fees and redemption gates, proved to have negative unintended consequences that amplified the redemption behavior exhibited by certain types of prime money market fund investors (most notably, institutional prime money market fund investors) in response to the market-wide lack of liquidity that arose in March 2020. Accordingly, the delinking of liquidity thresholds from the imposition of liquidity fees and redemption gates should be the focus of any potential future rulemaking.