Feb 10 -- The Securities and Exchange Commission (SEC or Commission) is seeking comment by April 12, 2021 on potential reform measures for money market funds, as highlighted in a recent report of the President's Working Group on Financial Markets (PWG). Public comments on the potential policy measures will help inform consideration of reforms to improve the resilience of money market funds and broader short-term funding markets.
The PWG has studied the effects of the growing economic concerns related to the COVID-19 pandemic in March 2020 on short-term funding markets and, in particular, on money market funds. The results of this study are included in the report issued on December 22, 2020 and attached to this Federal Register notice as an Appendix (the “Report”).
The Report provides an overview of prior money market fund reforms in 2010 and 2014, as well as how different types of money market funds have evolved since the 2008 financial crisis. The Report then discusses events in certain short-term funding markets in March 2020, focusing on money market funds. In reviewing the events of March 2020, the Report discusses significant outflows from prime and tax-exempt money market funds that occurred and how these funds experienced, and began to contribute to, general stress in short-term funding markets before the Federal Reserve, with the approval of the Department of the Treasury, established facilities to support short-term funding markets, including money market funds. The Report observes that these events occurred despite prior reform efforts to make money market funds more resilient to credit and liquidity stresses and, as a result, less susceptible to redemption-driven runs.
Accordingly, the Report concludes that the events of March 2020 show that more work is needed to reduce the risk that structural vulnerabilities in prime and tax-exempt money market funds will lead to or exacerbate stresses in short-term funding markets. The Report discusses various reform measures that policy makers could consider to improve the resilience of prime and tax-exempt money market funds and broader short-term funding markets. Many of the measures discussed in the Report could be implemented by the Commission under our existing statutory authority, while others may require coordinated action by multiple agencies or the creation of new private entities. Moreover, relevant money market funds could likely implement some of the potential reform measures fairly quickly, while other measures would involve longer-term structural changes.
The Commission requests comments on the Report. Comments received will enable the Commission and other relevant financial regulators to consider more comprehensively the potential policy measures the Report identifies and help inform possible money market fund reforms. Following the comment period, we anticipate conducting discussions with various stakeholders, interested persons, and regulators to discuss the options in the Report and the comments we receive.
We request comment on the potential policy measures described in the Report both individually and in combination. We also request comment on the effectiveness of previously-enacted money market fund reforms, and the effectiveness of implementing policy measures described in the Report in addition to, or in place of, previously-enacted reforms.
Commenters should address the effectiveness of the measures in: (1) Addressing money market funds' structural vulnerabilities that can contribute to stress in short-term funding markets; (2) improving the resilience and functioning of short-term funding markets; and (3) reducing the likelihood that official sector interventions will be needed to prevent or halt future money market fund runs, or to address stresses in short-term funding markets more generally. Commenters also may address the potential impact of the measures on money market fund investors, fund managers, issuers of short-term debt, and other stakeholders. In addition, we are interested in comments on other topics commenters believe are relevant to further money market fund reform, including other approaches for improving the resilience of money market funds and short-term funding markets generally. We encourage commenters to submit empirical data and other information in support of their comments.
FR notice inviting comment and with Report appended: https://www.govinfo.gov/content/pkg/FR-2021-02-10/pdf/2021-02704.pdf