Author: Anita Hawser

NEWSMAKERS: UNITED STATES

By Anita Hawser

Proprietary trading by banks and OTC derivatives has come under increased regulatory scrutiny following the 2008 subprime crisis, but, to the surprise of many, regulators are also fixing their gaze on money market funds (MMF).


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Jellison: Rules may backfire

Long viewed as a safe form of investment, money market funds are open-ended mutual funds that earn interest and maintain a net asset value (NAV) of $1 per share. They typically invest in short-term liquid debt and monetary instruments such as treasuries.


At the peak of the 2008 financial crisis, however, money market investors took fright when The Reserve Primary Fund, a $65 billion, highly rated money market fund, saw a run on its fund after investors panicked about its exposure to Lehman Brothers, which was declared bankrupt. The discovery that money market funds were less than rock-solid led to loud calls for reforms, including allowing floating NAVs and establishing an emergency liquidity facility and insurance for money market funds.


A survey conducted by money-market-fund portal provider Institutional Cash Distributors, has found corporate treasurers are strongly opposed to some of the regulatory proposals. The "floating NAV" reform elicited the strongest response, with 62% of treasurers surveyed by ICD disagreeing with the reform option and 44% saying it was the "least helpful option." Mandatory redemptions for money market funds was also unpopular, with 54% of respondents disagreeing. A proposal to convert funds to "special- purpose banks" likewise elicited a strong reaction: 60% of respondents disagreed with it.


Peter Campagna, treasurer at electronics supplier Maxim Integrated Products, said the proposed government regulation of MMF's will go too far, with a rationale that any investor losses are unacceptable.


Jeff Jellison, CEO of ICD North America, warned of the danger of overregulation. "The unintended consequences ... could create dislocations to our businesses and governments, which could materially damage the US economy," he stated.