{"id":34027,"date":"2023-07-11T05:18:14","date_gmt":"2023-07-11T09:18:14","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/sec-to-vote-on-money-market-changes-aiming-at-stopping-runs\/"},"modified":"2023-07-11T05:18:15","modified_gmt":"2023-07-11T09:18:15","slug":"sec-to-vote-on-money-market-changes-aiming-at-stopping-runs","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=34027","title":{"rendered":"SEC to Vote on Money Market Changes Aiming at Stopping Runs"},"content":{"rendered":"
\n
<\/p>\n
<\/p>\n<\/figure><\/div>\n

At a Wednesday meeting, the U.S. Securities and Exchange Commission will vote on rules aimed at preventing money-market funds from running short of cash in times of crisis\u2014such as the 2008 financial crisis or the 2020 Covid-19 outbreak.<\/p>\n

Some of the SEC\u2019s ideas don\u2019t sit well with the industry that manages the nearly $6 trillion invested in the funds. One is the agency\u2019s proposal to require \u201cswing pricing\u201d adjustments to withdrawals, on days when a fund\u2019s institutional investors are taking out more cash collectively than they are putting in. Swing pricing could discourage a \u201crun on the bank\u201d amid a panic, the SEC believes, by penalizing investors who are rushing to cash out first.<\/p>\n

\n

\u201cThere is a saying when you\u2019re in the woods,\u201d SEC Chair Gary Gensler told a fund industry gathering in May. \u201cYou don\u2019t have to outrun the bear; you just have to outrun one of your fellow campers.\u201d<\/p>\n

Swing pricing would deter a \u201cdash for cash,\u201d Gensler said, by adjusting the fastest withdrawals for the liquidity cost they leave on those remaining in a fund. The SEC proposal would require it just for certain institutional and tax-exempt money-market funds. Such funds manage about $300 billion in aggregate, which they typically invest in certificates of deposit and commercial-paper issued by banks\u2014assets that are illiquid and poor sources of quick cash, said Gensler.<\/p>\n

The money-market reforms on Wednesday\u2019s SEC agenda were actually proposed back in 2021. Money-market funds have been around since the 1970s, when regulations prevented banks from offering depositors rates that could keep up with the era\u2019s inflation. The funds required government backstops in the liquidity crunches of 2008 and 2020. But in the year 2023, the liquidity crunch was in the bank sector, while money-market funds found themselves swimming in nearly $1 trillion in cash that investors pulled from banks.<\/p>\n

Since swing pricing was proposed in 2021, the idea has been roundly-condemned by money fund managers, ranging from
\n Federated Hermes
\n (ticker: FHI), to
\n JP Morgan Chase
\n (JPM), to
\n State Street
\n (STT), as well as the mutual fund trade association called the Investment Company Institute.<\/p>\n

Adjusting the daily price of redemptions for the SEC\u2019s swing factors would be impractical and costly, Investment Company Institute spokesman Stephen Bradford told Barron\u2019s<\/em>. The industry\u2019s fund managers are well able to manage redemption demands in panicky times, he said.<\/p>\n

The SEC proposal does contain an alternative idea for discouraging runs: allowing funds to assess fees on withdrawals in times of tight liquidity. The industry has said it wouldn\u2019t mind that measure, as long as the fees were at the fund\u2019s discretion.<\/p>\n

There are other parts of the SEC money-market proposal that the industry supports, Bradford noted. Fund managers won\u2019t mind if the SEC takes away their ability to temporarily suspend redemptions in a liquidity crunch. Studies of the 2020 financial dislocations have concluded that the mere existence of that \u201cgating\u201d power spurred fund investors to grab for their cash.<\/p>\n

The industry also doesn\u2019t object to the proposed increase in the required level of liquid assets at a fund\u2014above the current levels of10% if measured daily, and 30% if measured weekly.<\/p>\n

\u201cMoney-market funds are conservatively managed,\u201d said industry spokesman Bradford. \u201cAnd if they want us to be extra-conservative, we support that.\u201d<\/p>\n

Write to Bill Alpert at william.alpert@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

At a Wednesday meeting, the U.S. Securities and Exchange Commission will vote on rules aimed at preventing money-market funds from running short of cash in times of crisis\u2014such as the 2008 financial crisis or the 2020 Covid-19 outbreak. Some of the SEC\u2019s ideas don\u2019t sit well with the industry that manages the nearly $6 trillion […]<\/p>\n","protected":false},"author":1,"featured_media":34028,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-34027","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nSEC to Vote on Money Market Changes Aiming at Stopping Runs | iFintechWorld<\/title>\n<meta name=\"description\" content=\"At a Wednesday meeting, the U.S. Securities and Exchange Commission will vote on rules aimed at preventing money-market funds from running short of cash\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=34027\" \/>\n<meta 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