IOSCO released the final report Policy Recommendations for Money Market Funds in which proposes recommendations – for the regulation of Money Market Funds (“MMFs”) throughout the world. The report contained 15 major recommendations (at page 19) the most important of which are summarized below:
- Limits on the assets in which they invest and the risks they take
- Limits on use of repo
- Must use fair value accounting
- Must disclose to investors the possibility of principal loss
- Additional requirements should apply to funds that have a “stable” market value; e.g. funds that price at a buck
- Funds should strengthen their internal credit risk practices and not rely so much on external ratings
- Funds should conduct stress testing with the goal of surviving extraordinary market conditions.
The fundamental reason for concern over the regulation of money market funds is that such funds may contribute to systemic risk. In this regard, the Report (at page 4) includes some a few fairly remarkable numbers as to the percentage of short-term dollar denominated CP and negotiable Certificates of Deposit that are held by money market funds.
Lofchie Comment: The IOSCO press release (at page 1) states that the report was unanimously approved by the IOSCO Board with the exemption of the SEC Commissioners, a majority of whom did not support the report. This is not completely surprising in light of the fact that I view the report as being implicitly (or perhaps even explicitly) critical of US regulation of money market funds (see the discussion on pages 7-8 of the report, which begins its discussion of additional “concerns” with “breaking the buck”). In addition, I note that this past summer, the SEC Commissioners engaged in a spirited public debate as to the next steps in the regulation of money market funds in the United States with SEC Chairman Schapiro arguing that the SEC should put out new rule proposals promptly and a majority of the Commissioners asserting that further study of the issue was needed. The links to the relevant news stories as to the positions of the various SEC Commissioners are below:
SEC Chairman Mary Schapiro’s Statement on Money Market Fund Reform
Commissioner Luis A. Aguilar’s Statement Regarding Money Market Funds
SEC Commissioners Gallagher and Paredes’ Statement on the Regulation of Money Market Funds
View report here (links externally to IOSCO website).
See also: IOSCO Press Release.