The Investment Company Institute is proposing that prime money market funds impose temporary “gates” and fees to halt redemptions during times of market stress.
In its latest comment letter filed with the Financial Stability Oversight Council, the ICI said the gates and fees would act as a “circuit breaker” on heavy redemptions from prime funds, unlike the other FSOC proposals, including:
• 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 addition, the ICI said its proposal would not limit investors’ access to their shares during normal market conditions, and thus would not change the fundamental characteristics of money market funds or their value to investors and the economy.
“A temporary gate with the option for a fee is the only proposal under discussion that would stop redemptions during extreme market stress,” stated ICI President and CEO Paul Schott Stevens.
“The other recycled regulatory proposals FSOC suggests would not accomplish regulators’ stated goals and, in fact, would be counter-productive in light of the harm they would inflict on investors and the economy.”