A second effort to overhaul rules governing the $2.6 trillion money-fund industry will be offered by the U.S. Securities and Exchange Commission before the end of March, SEC Commissioner Daniel M. Gallagher said Wednesday.
“I hope and expect in the first quarter to have a proposal out for comment,” Gallagher said in a speech in Washington. “Hopefully soon here we will see a proposal coming out of the commission, something that is more tailored and will engender much more cooperation from the industry than we have seen before.”
Regulators have been working to overhaul rules governing the money-fund industry since the September 2008 collapse of the $62.5 billion Reserve Primary Fund. A proposal supported by former SEC Chairman Mary Schapiro to force money funds to choose between a floating share value or a combination of capital buffers and withdrawal restrictions was dropped in August after failing win support from a majority of commissioners.
In November, the Financial Stability Oversight Council, a group formed by the Dodd-Frank Act to address systemic financial risks, urged the commission to try again.
The effort appeared back on track in December after Democratic Commissioner Luis Aguilar, who opposed the earlier proposal, said that a study issued by SEC staff allayed his concerns that money-fund rules adopted in 2010 hadn’t been sufficiently studied. He said he’ll reconsider all the ideas presented before, including abandoning the industry’s traditional $1 share price.
Gallagher said the commission was studying the tax and accounting impacts of a floating net asset value for money funds, which would create gains and losses for investors. He also said the commission would confer with the Treasury Department and Internal Revenue Service “to find ways to mitigate if not resolve” concerns about the impact on investors.
“The issue is whether things are cash equivalents or not, and we have to analyze whether they are cash equivalents,” he told reporters after his speech to the U.S. Chamber of Commerce’s Center for Capital Market Competitiveness.
In that speech, Gallagher said the SEC has played “second fiddle” to banking regulators trying to complete the Volcker rule despite the agency’s expertise in regulating trading and hedging practices. The rule would ban banks from trading with their own funds.
The Republican commissioner’s comments may show conflicts among regulators trying to implement the rule, mandated by the 2010 Dodd-Frank Act. The SEC is evenly divided with two Democrats and two Republicans. The Republican commissioners have called for the rule to be re-proposed.
Regulators “could be focusing on other matters rather than spinning their wheels with no end in sight,” Gallagher said in his speech.
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