PALM DESERT, Calif. -- It’s been three years since the collapse of Bear Stearns – which occurred on the eve of the 2008 Investment Company Institute Mutual Funds and Investment Management Conference.

Now, as this year’s edition opened up, the Securities and Exchange Commission and the Commodity Futures Trading Commission are working their way through scores of new rules which they must study, define, take comments on , then enact as a result of the 2010 Dodd-Frank Wall Street Reform Act aimed at preventing another credit crisis – and at restoring investor confidence in capital markets.

This will define “the workload for the coming year,’’ said Karrie McMillan, general counsel of the ICI in opening comments here Monday. But where that work will end up cannot yet be determined.

“What I can’t promise you is certainty,’’ she told attendees of this year’s conference. “Certainty about our future is still a distant dream.’’

For instance, the Financial Stability Oversight Council established by the act will designate “systemically significant nonbank financial companies” that will be subject to Federal Reserve Board Supervision, similar to banks.

But, to date, the nature, scope, size and other characteristics of what will define such a systemically significant entity have not been set, she noted. Even after two rounds of industry and public comment. 

Also unclear is how the Federal Reserve, the U.S. Treasury and the SEC is going to react to a cornerstone proposal from the ICI on how to provide funding from within the investment industry itself to backstop money market funds in the event of another financial crisis. 

In January, the ICI laid out a blueprint for a liquidity facility that would help money market funds maintain a $1 share net asset value even in times of a credit or short-term capital crunch.

Under the plan, all prime money market funds—those that invest in high-quality, short-term money market instruments, including commercial paper—would be legally required to participate in the facility, which would be structured as a state-chartered bank or trust company regulated by state banking authorities and the Federal Reserve.

The facility would be capitalized through a combination of initial contributions from prime fund sponsors and ongoing commitment fees from member funds. In the third year, the liquidity facility would begin to issue time deposits to third parties to further build its balance sheet. Like other banks, the facility would also have access to the Federal Reserve discount window.

This would be designed to prevent another money market fund “breaking the buck,’’ as occurred in the wake of the 2008 crisis. The Reserve Primary Fund, the nation’s first money market fund, is now in liquidation in the aftermath of its net asset value falling below $1. The fund had heavily invested in Lehman Brothers assets and when Lehman Brothers failed, it became increasingly concentrated in those holdings.

Also unclear is what companies will have to comply with new strictures on executive pay, which introduces more uncertainty, McMillan said.

And the establishment of “whistleblower” programs that Dodd-Frank instructed the SEC and CFTC to create very well could undermine asset management companies’ own efforts to police their troops.

“I think I see a new reality TV program coming: SEC Bounty Hunter,’’ she said.

Fund firms, she said, will find it difficult to keep their employees from bypassing their internal procedures for complying with regulations when there are “dazzling, huge bounties” to be had.

The amounts that could have been earned in previous frauds, for instance, already are set out, she said, in a Web site called

How online access to proxy statements for different types of funds should be provided also is unclear, she said. Fund requirements are different, she noted, than those for publicly traded stocks.


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