August 21, 2012
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090
Dear Chairman Schapiro:
It seems that anytime regulation is considered, context should be a major consideration. I believe that, many times, we lose sight of this context and become purely politically reactionary. In the case of the proposed new regulation of money market funds, I believe it is extremely important to keep in mind the historical context of the performance of money market funds.
Yes, there have been times of extreme stress in the world of money market funds and the financial industry as a whole. Obviously, the 18 month period from late 2007 to early 2009 was such a time. 1998 also comes to mind. These were times not of just stress but borderline panic. Through all of this, it is important to recognize that, to my knowledge, ONLY TWO money market funds have ever "broken the buck"! Even in those situations, the investors' losses were minimal. In addition, there are tremendous market pressures already in place for providers of money market funds to take the necessary internal measures to prevent a sponsored fund from "breaking the buck". I would say that this is a pretty strong track record for any financial product.
I believe that the current proposals for regulating money market funds would fundamentally change an industry whose participants highly value the characteristics of money funds that would change due to the proposals.
As someone who has depended on the utility, stability and liquidity of money market funds (MMFs), I am writing to express my strong opposition to the various regulatory proposals being considered by the SEC. Each would destroy a fundamental reason why the funds have become such a popular and useful cash management product. Contrary to what some regulators may want us to believe, the vast majority of users well understand that MMFs are investments which are not guaranteed by the government or anyone else.
One of the hallmarks of MMFs is the stable, $1.00 net asset value. A move to adopt a floating NAV would create accounting nightmares for users, requiring us to track increases or decreases (literally fractions of a penny) in share price each time shares are bought or sold.
The liquidity of MMFs is an equally important aspect of their utility.
Instituting redemption restrictions of any kind, at any time, is just a bad idea. I know of no other widely used cash management vehicle that tells customers that they may not have full access to their investments when they want it or need it. Such a freeze would also cripple sweep accounts, fiduciary accounts and a number of other popular money market fund benefits.
Finally, any proposal to require money market funds to maintain "capital buffers" or reserves would further limit the attractiveness of the investment. This would only serve to decrease the yield on the fund while such a buffer was being built. In the current rate environment such a concept seems untenable and to fail even the most rudimentary cost/benefit analysis.
Given the significant negative impact that any of these proposals will have on those who rely on money market funds, I hope that the SEC will take my views into consideration. I ask you to look closely at the fallout that would ensue and abandon the effort to regulate MMFs out of existence. Money market funds are working well and none of the alternatives available provide the same flexibility, yield and value.