August 25, 2008
I understand that the Vanguard Fund Group has filed an objection to the SEC rule making proposal to ease the regulation of money market funds (IC-28327).
It seems to me that the SEC has forgotten the history that led to the rules in the first place. In the early 1980s, some money market fund managers corrupted the concept by putting junk paper in their funds in an attempt to take market share by offering a higher current yield. The aggressive competition led to a run against some money market funds, and a threat to the entire industry. The SEC risks compounding its recent negligence with respect to SIVs, asset backed commercial paper, and auction rate notes by proposing the rules changes.
The commercial paper ratings were never perfect, but the existing rules have protected investors and the industry from the kind of abuses that were prevalent in the early 1980s, while still providing some flexibility to the managers.
The SEC should not remove the reference to NRSRO ratings in Rule 2a-7.