Commissioner Luis A. Aguilar
U.S. Securities and Exchange Commission
Aug. 23, 2012
Having reviewed the Chairman’s proposal on money market funds, it is clear to me that there is much to be investigated related to the cash management industry, as a whole, before a fruitful discussion can be initiated as to whether additional structural changes should be made to only one segment of the cash management industry — SEC-registered money market funds.
The cash management industry is a large industry that includes many pooled vehicles exempted from registration and largely excluded from regulatory oversight. There are larger macro questions and concerns about the cash management industry as a whole that must be considered before a specific slice of that industry — money market funds — is fundamentally altered. To move forward without this foundation is to risk serious and damaging consequences in contravention of the Commission’s mission.
I am, and continue to be, supportive of the Commission putting forward a thoughtful and deliberative concept release that asks serious and probing questions about the cash management industry as a whole to diagnose its frailties and assess where reforms are required. This release should include all pooled cash management mechanisms so that the Commission is knowledgeable about how trillions of dollars are managed and understands how this money is able to move from the regulated, transparent money market fund market to the opaque, unregulated markets.
One section of this release would have to be devoted to a study of the Commission’s 2010 money market amendments (“2010 Amendments”) to gather data and ascertain their effectiveness. Money market fund investors have said that they appreciate the greatly enhanced transparency after the Commission’s 2010 Amendments and have put it to great use. To date, neither the Commission nor the staff has undertaken a thorough and comprehensive study of the 2010 Amendments. A critical analysis of the efficacy of the 2010 Amendments would be a necessity to analyze what, if any, additional steps are required. This critical analysis must precede any proposals to further amend our rules, and in this instance, it is particularly necessary that this study inform any proposal, not merely accompany it.
I remain concerned that the Chairman’s proposal will be a catalyst for investors moving significant dollars from the regulated, transparent money market fund market into the dark, opaque, unregulated market. Currently, in addition to all the prescriptive conditions applicable to SEC-registered money market funds, these funds are also highly transparent to investors and regulators in a way that other cash management vehicles are not. Many large investors in SEC-registered money market funds have made this point, and they have emphasized that the mere publication of this SEC proposal would be the trigger for the movement of monies. Such transfers could cause significant damage to the country’s short-term capital markets.
While such concerns are often expressed in connection with any regulatory action and can veer into hyperbole, this is different. Here, investors are speaking out about their own investments. It is their money that is invested in money market funds, and they can easily direct these monies to other investments.
I am also concerned that, given the current volatility of the capital markets and the fragile state of the economy, the timing of this proposal and its collateral consequences could be needlessly harmful.
Thus, a concept release to study the cash management industry as a whole would provide a foundation to understand the role, and relative size, of SEC-registered money market funds in that overall industry. The information gathered in response to the concept release would provide the foundation to support any proposed changes to the entire cash management industry.
Unfortunately, the lack of a foundation for and the rush to act on the proposal are also illustrated in the letters the Commission has received within the last week questioning the accuracy, veracity, and credibility of an SEC staff list of 300 money market funds that received sponsor support. The Commission was never given the chance to assess the staff’s underlying methodology to understand how the list was compiled. Now, the Commission is receiving letters stating that there are serious discrepancies with the list. This list has been touted publically as a prime example of why additional reform is needed. Now, the credibility of that list is in doubt. It is impossible to understand what is true, and this demands more time to sort out the facts.
There is a way forward to tackle the issues that matter to investors and the public interest. I remain supportive of an effort that analyzes the cash management industry as a whole and the effects of the 2010 Amendments. These findings should inform further actions. As an SEC Commissioner, it is important to me that all of the Commission’s actions are predicated on a solid foundation of credible information, and this is no different. At a time when there are still outstanding issues regarding Dodd-Frank rulemaking, market structure, broker-dealer custody, and other matters of imminent concern to investors, I am ready to act to do what is in the best interests of investors and the public interest.