Issuers of money market mutual funds, including Pittsburgh's Federated
Investors Inc., claimed victory Thursday after securities regulators tabled a
vote on reform measures that the industry deemed onerous.
"This is a victory for the American financial system," including fund
shareholders and issuers, said CEO J. Christopher Donahue.
Securities and Exchange Commission Chairman Mary Schapiro abandoned a
quest to impose tougher rules on the $2.6 trillion money market mutual fund
industry after three of the four other commissioners did not support a
four-year effort to make money funds more stable, she said in a statement.
Other government officials, including two Federal Reserve bank
presidents, Eric Rosengren of Boston and William Dudley of New York, and
Treasury Secretary Timothy Geithner had backed Schapiro's proposals, which
were opposed by fund companies such as Federated.
The proposals would have required money market fund issuers to build
capital cushions against losses, dropped the funds' traditional $1 per share
price standard, and slightly restricted shareholder redemptions.
"As I've said in the past, I look at all three (provisions) as different
death sentences: death by poison, death by hanging and death by bullet," said
Donahue, who has long been an outspoken critic of the reform measures proposed
by the SEC.
With more than $265 billion in money market assets, Federated is the
nation's third-largest issuer of money market funds, behind Fidelity
Investments and JPMorgan Chase.
Money market assets accounted for 75 percent of Federated's $355.9
billion in assets, and 47 percent of revenue on June 30.
Consumers would not have benefited much from the proposed regulations,
which would "only diminish the appeal of money market funds to begin with,"
said Greg McBride, senior financial analyst for Bankrate.com in North Palm
Beach, Fla.
"If you're going to do away with the $1 floor, there's no incentive to
put money in money market funds," said McBride. "If the net asset value is
floating and you earn 0.1 percent annually, people will put their money in
another investment, like a short-term bond fund or a bank saving account."
Schapiro has worked to make money funds more stable since the collapse of
the $62.5 billion Reserve Primary Fund in September 2008. Its closing
triggered a wider run on money funds, helping freeze global credit markets.
She argued that the funds' stable share price encourages investors to
flee at the first sign of trouble because it allows those who react quickly to
sell their shares at $1 each, even if the net asset value has dropped below
that level.
Corporations, which often turn to money market funds as short-term
investments, also applauded the SEC nonvote.
"The potential disruption of $2.6 trillion of funding would likely have
left corporate treasurers without a critical source of short-term capital,"
said Jim Kaitz, president of the Association for Financial Professionals,
which has about 16,000 members.
Next, the fight over how to regulate money market funds probably will
move to the Financial Stability Oversight Council, a panel of regulators
created by the Dodd-Frank Act to identify threats to financial stability.
Federated shares closed at $21.51, up 89 cents, or 4.3 percent.
