For nearly three decades, money market funds have served as a cost-effective means for a wide array of investors to achieve market rates of return, while promoting stability of principal and liquidity of their investment. Money market funds are highly regulated, and serve as a crucial source of short-term financing, especially in the recovering U.S. economy, where cash flow for the government, employers and others may be uneven.
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 Members of The New England Council’s Financial Services Committee are concerned that, while well-intentioned, the floating NAV proposal would have serious consequences for an important mechanism that is helping facilitate our nation’s fragile recovery.
Last week, 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. Continuing our advocacy on this issue, we worked with Senator Jack Reed’s office to submit a letter outlining the NEC’s concerns as part of the record of this hearing.
In particular, the letter expresses 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. The letter echoes a similar letter sent to SEC Chair Shapiro in January.