SEC's Piwowar casts doubt on how money fund rules will shape up

WASHINGTON Tue Jul 15, 2014 6:37pm EDT

SEC Commissioner Michael Piwowar speaks on ''advancing and defending SEC's core mission'' at the U.S. Chamber of Commerce in Washington January 27, 2014.  REUTERS/Kevin Lamarque

SEC Commissioner Michael Piwowar speaks on ''advancing and defending SEC's core mission'' at the U.S. Chamber of Commerce in Washington January 27, 2014.

Credit: Reuters/Kevin Lamarque

WASHINGTON (Reuters) - A top U.S. securities regulator raised doubts on Tuesday on whether his agency will adopt rules requiring prime money market funds to float the value of their shares, saying deliberations are ongoing and that he opposes a key element of the plan.

"There is a question on whether we are going to move forward on a floating (net asset value)," Michael Piwowar, a Republican member of the Securities and Exchange Commission, told reporters on the sidelines of an event at the American Enterprise Institute.

"We are still in discussions. ... The commission is still trying to work to formulate what the final version of the rule will be," he said, noting that it "may" or "may not" contain a floating NAV.

Piwowar's comments come as the SEC is putting the finishing touches on a rule aimed at reducing the risk of investor runs on money market mutual funds similar to what occurred in the 2008 financial crisis.

The SEC's proposal contains several options. It would require prime institutional funds to shift from a stable, $1 per share net asset value to a floating net asset value. It also would permit fund boards to impose "gates" on redemptions and charge liquidity fees in times of stress.

The SEC could opt to adopt one of the two plans, or adopt them in combination.

A person familiar with the matter told Reuters last week that the SEC was eyeing July 23 as a possible date for a vote and that it was leaning toward adopting a rule that combines the two provisions.

Piwowar declined to confirm the date or how the rule may shape up.

But he said he cannot support a floating net asset value in its current form because it would require floating shares to be rounded to the fourth decimal place -- something he said is out of line with current market practice.

"We don't require that on any other mutual fund. It makes absolutely no sense to me," he said, adding that he would support a stand-alone plan for fees and gates.

Many in the money market fund industry have expressed reservations against a floating net asset value amid concerns it could kill such funds.

The fears are partly driven by how the switch to a floating net asset value would trigger certain tax rules.

Funds with a stable $1 per share NAV do not generate gains or losses, but a floating share price would force investors to track tiny gains and losses on a routine basis for tax reporting.

A failure to reach a workable solution could pose a wrinkle for the SEC, because some commissioners have said the tax issue must be fixed in order for them to support a floating NAV.

The U.S. Treasury has yet to announce a proposal to address the tax concerns.

Piwowar said on Tuesday he is "aware of a particular fix" that is in the works, but declined to provide details, saying he did not wish to "front run" the Treasury.

Late on Tuesday, U.S. Senator Pat Toomey, a Pennsylvania Republican, and Senate Banking Committee Ranking Republican Mike Crapo separately sent letters to Treasury Secretary Jack Lew urging him to hurry up and release guidance for how tax rules might work for a floating net asset value.

"If a floating net asset value does become a part of any final rule, tax, accounting and compliance issues need to be resolved ahead of time," Crapo wrote.

A Treasury spokeswoman confirmed receiving the letters and said the department would respond.

(Reporting by Sarah N. Lynch; Editing by Leslie Adler)

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