Securities and Exchange Commission member Danel Gallagher said Thursday in New York that the federal regulator has to go back to the drawing board on making a new set of recommendations for reforming how money market mutual funds are structured.
“We’re going to see’,’ he told Money Management Executive, whether there is now a majority of commissioners ready to vote in favor of a floating net asset value for shares of money market mutual funds. The $1 a share value is the bedrock principle of the $2.7 trillion industry.
Gallagher, who was one of three commissioners prepared last month to vote against SEC chairman Mary Schapiro’s proposals for reform, was reported last week to be prepared to vote for a floating net asset value, after an interview with Bloomberg News.
Schapiro dropped her plan to propose a floating share price, capital buffers and redemption restrictions in the face of expected "no" votes from Republicans Gallagher and Troy Paredes along with swing vote Luis Aguilar.
Expected to vote in favor along with chairman Schapiro was Democrat Elisse B. Walter.
"The problem with that whole process is that it has been exposed to the media,’’ Gallagher said at a market structure conference held by the Securities Industry and Financial Markets Association. “It's been exposed publicly in a way that quite frankly it shouldn't be. It should be an internal commission process.''
After Schapiro dropped the initiative, reform fell to the Financial Stability Oversight Council, an umbrella group of U.S. regulators headed by Treasury Secretary Timothy F. Geithner. Geithner and the council subsequently pushed back on the SEC to come up with a set of reforms that is not limited to what has already been proposed.
The most controversial recommendation is to allow the stable, $1 a share value of assets in money market funds to float. That’s because the stable value is a bedrock of the industry and could scuttle a large amount of institutional investment, if severed.
The impetus for breaking the tie comes after the federal government came to the rescue of the money fund industry after the nation’s oldest such collective investment, the Reserve Primary Fund, broke the buck in September 2008. That occurred when the value of Lehman Brothers assets plunged. The break spurred a run on the funds.
Now, Gallagher said, the SEC has to come up with a new approach, which may or may not include an end to the
"We need to get back to the table, put something together and get it out in a timely manner,’’ Gallagher said.