WASHINGTON, D.C. - The Securities and Exchange Commission under chairman Mary Jo White will take a global perspective in the reforms and rules it lays down.
"As regulation moves forward on several parallel paths, I am hopeful that we can build upon the SEC's past coordination with global regulators to develop approaches that are consistent, workable and effective," both in the United States and abroad, White, in her 18th day as chairman, said.
Her first major public address came at the general membership meeting of the Investment Company Institute, which represents mutual fund companies and other buy-side firms.
Top of mind for its constituency: Additional reform of money market mutual funds, which institutions use in place of bank accounts, for liquidity.
In that case, White said the fund industry should expect an "appropriate and balanced proposal in the near future" on a new round of reforms for the $2.7 trillion money market fund business.
She stopped short of providing any indication of what the content or nature of the proposal will be. But said the product will be "informed by and can be shared with other regulators in the global marketplace."
White, speaking to the general membership meeting of the ICI, said the SEC's "staff and commissioners are actively engaged in discussions" that will produce "meaningful money market reform" but gave no timetable for delivery.
Before the conference, the president of the Money Markets Group at Fidelity Investments, Nancy Prior, told Money Management Executive that there is "growing consensus" in the fund industry that the portion of the money market business that needs to be focused on for further reform are general purpose 'prime funds' used by large financial institutions as alternatives to bank accounts.
Just before White's address to the ICI, the Wall Street Journal reported online as well that a new round of reform likely would tighten rules on institutional prime funds. This could include a floating of the net asset value of shares in such funds, from the historically fixed $1 a share promise.
Some institutions have argued they would have to pull out of money funds, if the value floated, because their investing policies do not allow it.
But institutions were the investors that were responsible for the run on money funds that occurred in September and October 2008, after the Reserve Primary Fund "broke the buck." Its shares plunged in value after Lehman Brothers failed. The fund could not maintain the $1 a share promise, because it had heavy holdings in Lehman assets.
Other types of money funds actually picked up assets during the crisis. Which has led Fidelity's Prior to argue that what the SEC needs to "solve for" is a potential run on the prime funds that large institutions put their money in.
Here's how White couched the SEC's response:
"As the SEC works to develop and propose meaningful money market reform, our goal is to preserve the economic benefits of the product, while addressing potential redemption pressures and the susceptibility of these funds to runs, runs in which retail investors especially are likely to suffer losses."
Under the approach that Fidelity argues has been gaining consensus, the next round of reform should restrict redemptions on institutional prime funds.
If they hold 30% of assets in cash or cash-like instruments, then throw down a gate when 15% of those liquid assets are pulled out, she told Money Management Executive. Then, charge a 1% liquidity fee, on any additional redemptions.
One percent should more than cover costs, which Fidelity says has been calculated at closer to 40 basis points, in actuality, or four-tenths of a percent.
Under former chairman Mary L. Schapiro, a new round of reform was to include floating the net asset value for all shares in all money funds, plus redemption restrictions and capital buffers to preserve the liquidity of funds.
The floating NAV in particular has been controversial and Schapiro dropped her proposals last August when she failed to get enough backing from commissioners. The proposals were criticized for not having sufficient analysis on their industry and economic impact.
"The SEC regulatory process is grounded in sound, economic analysis and is well informed by public comment, including helpful comments from the ICI, fund investors, and others with important and relevant perspectives on money market funds," White said. Those perspectives included "commissioners who vary in background and perspective."
The Financial Stability Oversight Council, which is headed by the secretary of the U.S. Treasury, took up the proposals, refined the Schapiro proposals and re-proposed them last fall.
But Under Secretary of Domestic Finance Mary John Miller said at the ICI membership meeting "we would gladly step aside if the SEC decides to move forward with their ideas."
The SEC's re-evaluation of what reforms to propose "will lead to a good ... result that has been informed by and can be shared with other regulators in the global marketplace," White said.
In her first three weeks on the job, White said she already had:
* Attended meetings with the Secretary of the Treasury and central bank heads and regulatory chiefs from Canada, China, Europe, Japan, Mexico, Singapore and Switzerland.
* Been briefed for a meeting of the Financial Stability Board and a London meeting of the International Financial Reporting Standards Foundation Monitoring Board.
* Reviewed, shaped, and voted on a thousand-page proposal for regulating cross-border derivatives transactions.
* Held personal meetings with the vice chair of the Japan Financial Services Agency and the Australian Securities and Investments Commission chairman, who also is chairman of the International Organization of Securities Commissions.
"This has all occurred because-while I believe that the U.S. has the safest, most resilient and robust markets in the world -we are not the only game in town,"' White said.