Jan 15 Asset manager Vanguard Group Inc and a
major financial industry trade group on Tuesday said they could
support certain "liquidity fees" on money market mutual funds,
the latest steps as the $2.6 trillion industry seeks to stave
off more sweeping regulations.
Similar fees have previously have been suggested by
BlackRock Inc as a way to protect money funds against
sudden runs by investors. Both Vanguard and the trade group, the
Securities Industry and Financial Markets Association (SIFMA),
made their comments in letters to the U.S. Financial Stability
The risk council has received a flood of letters in response
to broader rule changes it proposed, such as having the funds
abandon their traditional fixed net asset value of $1 per share,
or having them build up buffers. On Tuesday, the council said it
will extend until mid-February a deadline for public comments.
On Tuesday, Vanguard suggested a fee could be imposed on
withdrawals from prime money market funds of between 1 to 3
percent in some cases, and that redemptions could be suspended
temporarily. The fees would encourage other investors to stay
"The key to preventing a run on Prime MMFs from contributing
to broader dislocations in the financial markets during a
widespread crisis is to ensure that these funds have adequate
liquidity, and have the ability to slow redemptions when a
fund's liquidity becomes scarce," Vanguard wrote.
Regulators started looking at money market funds in
September 2008 after the Reserve Primary Fund, one of the
largest money funds at the time, suffered losses on Lehman
Brothers debt and could not maintain its $1 per share net asset
value, an event known as "breaking the buck."
Because the money market funds play a crucial intermediate
role as buyers of corporate debt their problems threatened to
cause financial markets seize up.
Similarly, SIFMA on Tuesday said the U.S. Securities and
Exchange Commission could explore allowing "redemption gates,"
or prohibitions on withdrawals, accompanied by liquidity fees
once the gates are lifted.
The letters from Vanguard and the trade group made clear
they would prefer only small steps by regulators.
Fund executives argue that changes made in 2010 have already
made the funds more resilient, and they worry further new rules
could drive away investors.
Lately there have been signs companies have been trying to
reach a compromise. Last week big money fund sponsors including
leaders Fidelity Investments, JPMorgan Chase & Co,,
Federated Investors and Goldman Sachs Group Inc all
pledged more disclosure of money funds' daily values.
Led by the U.S. Treasury Department, the risk council
proposed the reforms last year in an effort to pressure a
divided SEC to take similar actions on its own after former
Chairman Mary Schapiro failed to build a consensus from her
colleagues over the summer.
The comments that the risk council receives will inform its
next steps. It cannot force the SEC to act but can pressure it
via recommendations. So far the FSOC's ideas mostly mirror those
of Schapiro. But with her departure last month the commission is
divided between two Democrats and two Republicans.
The two Republicans, Daniel Gallagher and Troy Paredes, have
said they would be open to an alternative rule that would permit
board directors to limit withdrawals -- like SIFMA's "gates" --
in times of stress.
A Democratic skeptic of Schapiro's efforts was SEC
Commissioner Luis Aguilar. More recently Aguilar has said he
might support some reforms based on an SEC economic analysis.