U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Opening Statement at SEC Open Meeting on Money Market Fund Reform (Final Rule)


Commissioner Elisse B. Walter

U.S. Securities and Exchange Commission

Washington, D.C.
January 27, 2010

Perhaps the most important aspect of a Commissioner's opening statement at an open meeting is thanking the staff for its work. Today, however, I would place that honor second in my order of priorities. So, before I turn to money market funds, I would like to congratulate our Chairman on her first anniversary in office. The list of Mary Schapiro's accomplishments during the past year is long and impressive. I will refrain from citing more than a few, because I would risk keeping us from completing today's business. But, I would like to note that, from taking immediate action to assure that this agency is more nimble in its enforcement efforts to proposing and adopting rules that respond to the needs of investors and the marketplace and fill regulatory gaps identified by events of the recent past, our Chairman has served us extraordinarily well. It has been my honor and privilege to serve at your side. Mary, thank you. I know that I speak for all of us at the Commission in saying that we look forward with confidence to addressing the many complex and difficult issues before us with you at the helm. Having said that, I would also like to thank the staff for its hard work on the recommendations before us today. In particular, I would like to thank Buddy Donohue for lending Brian Murphy to me. Brian Murphy's expertise and insight have been a great help to me in considering this rule.

Money market funds have become a very important part of our financial markets. Investors use these funds primarily to pursue a conservative investment strategy or temporarily invest excess cash. Mom-and-pop investors like my Aunt Millie and small businesses often need the money invested in these funds to meet short-term financial obligations, such as purchasing homes, paying for health care, making college tuition payments, and funding payrolls. As a result, investors currently have over $3 trillion invested in money market funds. By way of reference, that is more than the gross domestic product of France.

For more than three decades, our laws governing money market funds have provided a regulatory foundation that has helped make such funds a popular investment vehicle for investors. However, the market turmoil that began in 2008 has shown us areas where we can improve. And, as I said at the proposing stage, one of the strengths of our financial regulatory system, and one of the strengths at the Commission, is that we never hesitate to re-examine and improve upon what we have already done. The amendments I hope we adopt today will help to ensure that the laws governing money market funds will continue to serve investors, and our markets, for decades to come.

These amendments will enhance the protections afforded to money market fund investors by enabling funds to better withstand market turmoil and giving these funds new tools to manage the adverse consequences of such turmoil. First, the amendments will enhance the protections to money market fund investors by generally requiring money market funds to invest in assets with higher credit qualities, reduce their weighted average maturity of portfolio holdings, and hold more assets that can be readily converted to cash. And, although I share many of Commissioner Casey's concerns about ratings, I believe that completely eliminating the references to ratings in this rule would weaken investor protection. Ratings are a necessary, but not sufficient, condition for investment in certain securities.

Second, the amendments will enable funds to use new tools to manage market turmoil more effectively. For example, the amendments will ensure that funds have the capability to price and redeem fund shares based on the market values of portfolio holdings. This will enable funds to continue to operate in the face of heightened redemption activity and declining market prices for portfolio holdings. These amendments will also empower fund affiliates to purchase potentially problematic securities from money market funds before such securities can harm the fund. Finally, these amendments will provide an efficient mechanism for money market funds to suspend redemptions and liquidate.

In addition, we are also enhancing the disclosures available to investors. These enhanced disclosures will help investors better assess the risks associated with money market funds and ultimately make more informed investment decisions. They will allow money market fund investors to access, among other things, funds' monthly portfolio holdings on funds' websites. Investors will also have access to additional portfolio information provided by money market funds to the Commission on new Form N-MFP. In particular, this new form will contain information about funds' risk characteristics and yield.

Significantly, this new form will also contain the market-based values of portfolio holdings as well as a fund's market-based net asset value. It will enhance the rather limited existing disclosure regime pertaining to a fund's market-based net asset value, which is currently only required on a bi-annual basis. Enhanced disclosure of such information will assist the Commission and investors in understanding potential risks associated with individual funds. This disclosure will indicate the extent to which a fund is managing its portfolio to achieve its fundamental objective of maintaining a stable net asset value.

Some have argued that investors should not have access to this information because investors, unaccustomed to seeing such information, may redeem fund shares simply because a fund's market-based net asset value deviates from its stable net asset value. Although I don't purport to know how each money market fund investor will react when this information is disclosed on a more frequent basis, I do not believe that more frequent disclosure will undermine the utility of this investment vehicle. More significantly, I believe that disclosure is the cornerstone of functional and efficient markets. We should not withhold this information from investors. Rather, as the staff has recommended, the Commission should empower money market fund investors by facilitating more robust public disclosure. After all, an informed investor is a better investor. This disclosure will help ensure that investors understand that money market funds, like all investments, involve risk and differ from FDIC-insured bank products. And the information may help facilitate a productive dialog between a fund and its current and prospective investors concerning, among other things, investment decisions, corporate governance, and risk management. I look forward to further consideration of more real-time disclosure.

Thank you again for all of your hard work, and I am very pleased to support your recommendation.


Modified: 01/28/2010