NEC successful on key Financial Services Committee priority

SEC decides against moving forward with controversial money market reforms

Over the past year, one of the New England Council’s Financial Services Committee’s top priorities has been opposing efforts to reform  money market funds.  In October 2010, the President’s Working Group on Financial Markets proposed that money market funds shift from a the standard $1 per share valuation, to a floating Net Asset Value (NAV).  This proposal was designed  to help shareholders better understand the risk of investing     Many members of Financial Services Committee grew concerned that, while well-intentioned, the floating NAV proposal would have serious consequences for an important mechanism that is helping facilitate our nation’s–and our region’s–fragile recovery.

The Council was pleased with this week’s Securities & Exchange Commission decision not to move forward on this controversial proposal to reform the widely used investment vehicle.  Over the past year, the Council has advocated to maintain the standard $1 per share valuation, so this decision marks a great victory for the Council and the numerous state and corporate treasurers who had voiced concerns about this proposal.

In a January 2012 letter to SEC Chairman Mary L. Shapiro, the Council outlined its concerns.   In particular, the Council expressed concerns that states and municipalities around our region could face a contraction of available financing, just at a time when they are struggling with some of the tightest budget restrictions in memory.  The letter noted that the consequences of a move to a floating NAV are multifold, including administrative costs for money market funds, administrative burden for shareholders, and a reduction in available funds for such expenses as corporate operating needs, infrastructure projects, and other municipal cash needs.

More recently, in June 2012, the Senate Banking, Housing and Urban Affairs Committee held a hearing entitled Perspectives on Money Market Mutual Fund Reforms. During her testimony, SEC Chair Mary Schapiro emphasized her interest in introducing the Floating NAV as a reform alternative for money market funds.  The New England Council worked with Senator Jack Reed’s office to submit a letter outlining the NEC’s concerns as part of the record of this hearing.

 

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