FSOC Unveils Money Fund Reforms

Change is in the air for money market funds and this time it looks like proposed reforms, in whatever form they may take, are going to stick. That’s because the Financial Stability Oversight Council today voted unanimously to push forward proposed recommendations for reform for public comment.

Present at today’s Council meeting were Tim Geithner, Treasury Secretary (Chairperson of the Council); Ben Bernanke, Chairman of the Board of Governors of the Federal Reserve System; Gary Gensler, Chairman of the Commodity Futures Trading Commission and Mary Schapiro, Chairman of the U.S. Securities and Exchange Commission among others.

The new reforms include:

• Floating Net Asset Value, which requires funds to have a floating net asset value per share by removing the special exemption that currently allows funds to utilize amortized cost accounting and / or penny rounding to maintain a stable NAV;

• Stable NAV with NAV Buffer and “Minimum Balance at Risk, which will require funds to have an NAV buffer with a tailored amount of assets of up to 1% to absorb day-to-day fluctuations in the value of the funds’ portfolio securities and allow the funds to maintain a stable NAV;

• Stable NAV with NAV Buffer and Other Measures, which require funds to have a risk-based NAV buffer of 3% to provide explicit loss-absorption capacity that could be combined with other measures to enhance the effectiveness of the buffer and potentially increase the resiliency of money funds

In a statement, the FSOC said its proposed recommendations “are not mutually exclusive and could be implemented in combination to address the structural vulnerabilities that result in the susceptibility of MMFs to runs.”

“The Council also recognizes that regulated and unregulated or less-regulated cash management products may pose risks that are similar to those posed by MMFs and that further MMF reforms could increase demand for non-MMF cash management products,” it said.

“The Council and its members intend to use their authorities, where appropriate and within their jurisdictions, to address any risks that might arise from a migration to non-MMF cash management products."