AT MMX FIDELITY’S PRIOR HINTS AT COMPROMISE WITH REGULATORSiMoneyNet’s Money Market Expo served as the backdrop for Fidelity Investments’ Nancy Prior to tell regulators in Washington, D.C. her company’s view of how to approach MMF reform.
The very title of her speech "Proceed with Caution: Striking the Regulatory Balance for Money Market Mutual Funds" resonated with the message in which the president of money markets stated, "We at Fidelity support reform that could serve to strengthen the resiliency of MMFs; but, as with any potential regulation, the expected benefits need to be carefully weighed against any potential harm or unintended consequences that might result from a change."
Prior who heads up the largest money-market fund provider, told her audience that in the wake of the 2010 reforms there has been an "exhaustive" and "thorough" debate about whether more reform is needed and she added, "While differences remain as to whether additional reform is necessary and, if so, what the best approach might be, we all share the same goals: to ensure the strength and stability of MMFs and to preserve the benefits that these funds provide investors, issuers and our economy." In spite of what appears to be an impasse on many levels, Prior sees a glint of light, adding "I believe we are beginning to see a consensus emerge that could lead to a path forward, a consensus across the various constituencies that have been actively involved in this debate."
No more action is warranted following the 2010 reforms, stressed Prior who also pointed out that "any structural changes being considered by regulators would greatly diminish the attractiveness of these highly effective and low-cost cash management vehicles with severe consequences."
Dismissed out of hand by Prior were the floating net-asset-value, the minimum-balance-at-risk and redemption restrictions "during the ordinary course of business."
The "emerging consensus" referenced earlier has to do with the "realization that Treasury, Government and Muni funds do not need any further reform" because liquidity, credit and redemption risks have not been identified with them by the Financial Stability Oversight Council or the Securities and Exchange Commission. "Based on the facts, data and empirical evidence, there simply is no justification, or benefit for further reforms to Treasury, Government, Municipal or Retail Prime MMFs," said Prior.
"The only issue that has been identified is that Institutional Prime MMFs (and not any other type of MMFs) can be subject to large, abrupt redemptions in periods of extreme market stress," relayed the Fidelity executive. Prior then offered support for the idea of liquidity gates and/or fees for prime institutional funds if the SEC concludes that they need more reform. And, she added, that they are "triggered only during times of market stress."
Following her comments on the strength of MMFs interwoven with cautionary words about the adverse consequences of any inherent changes in the product, Prior concluded with the following statement: "If more reform is needed, it should be limited to Institutional Prime Funds and be narrowly tailored to address the risk in this specific segment of the industry as highlighted by the Securities and Exchange Commission study."