ABA recommends changes to SEC’s proposed MMF reforms

As the Securities and Exchange Commission contemplates reforms to strengthen the transparency and resiliency of money market funds, the American Bankers Association yesterday urged the commission to “carefully consider any changes that may affect the availability of these funds to bank fiduciary and non-fiduciary accounts.” The proposed reforms come in response to volatility observed in MMFs during the early days of the pandemic.

Among other things, the SEC is proposing to eliminate the current liquidity fee and redemption gate mechanism in the rule; introduce “swing pricing” to internalize related costs on redeeming investors when there are net redemptions in a pricing period; double the daily liquid asset and weekly liquid asset minimum liquidity requirements; expand disclosure requirements; and require stable net asset value funds, such as government money market funds, to switch to floating NAV in the rare case of negative interest rates.

In its comment letter, ABA urged the SEC to allow government MMFs to decide, based on their determination of the needs and characteristics of their investors, whether reverse distribution mechanism or floating NAV is the most appropriate way to manage the effects of negative interest rates. Many bank sweep programs for fiduciary and custody accounts are built on the assumption that the MMF has a stable share price, and ABA noted that any changes to these systems to accommodate a very rare potential for negative interest rates would be costly and operationally difficult.

The association also warned that the swing pricing outlined in the proposal would be costly and difficult to implement, and urged SEC “to weigh the effect of swing pricing on the availability of these funds and to consider in that context the alternative framework of liquidity fees if in the best interest of the fund and its investors.”