Directors, ICI Make Case For Money Fund $1 NAV
January 17, 2011
The Independent Directors Council on Tuesday urged regulators to preserve the $1 net asset value of money market funds, saying a floating NAV would not reduce systemic risk in any meaningful way.
The IDC made the comments in response to the Securities and Exchange Commission's request for comments on the President's Working Group on Financial Markets' report on money market reform options.
"Floating the NAV of money funds would, as the PWG report notes, represent a 'dramatic change,'" said IDC Managing Director Amy Lancellotta. "We strongly oppose such a change, particularly when the option is unlikely to reduce systemic risk."
IDC said it did support, however, a private emergency liquidity facility for prime money market funds as an additional liquidity backstop in terms of severe market stress. Lancellotta called such a facility "a less drastic, more viable option to strengthen money market funds."
The Investment Company Institute proposes that fund companies finance this private bank with $350 million in assets and projects that would grow to $24 billion after 10 years.
"Money market funds have provided incomparable benefits to investors and the capital markets for nearly 30 years," said Dorothy A. Berry, chairman of the IDC and an independent director of PNC Funds. "Money market funds offer investors daily liquidity, a high degree of safety and competitive yields, while providing a critical source of almost $3 trillion in funding in the broader economy."
Four out of five organizations that currently include money market funds in their short-term investment portfolios would drop them if a floating net asset value were to become a reality, according to a survey by the Association for Financial Professionals.
SEC Charges Schwab With YieldPlus Falsification
The Securities and Exchange Commission charged Charles Schwab with making misleading statements about its Schwab YieldPlus Fund. Schwab agreed to pay $118 million to settle the charges.
The SEC also charged former CIO for Fixed Income Kimon Daifotis and EVP Randall Merk, previously president of Charles Schwab Investment Management, with fraud and other securities law violations.
The SEC said that rather than adhere to its stated policy of offering only slightly higher risk than a money market fund, YieldPlus invested more than 25% of its assets in private-issuer mortgage-backed securities. As a result, the YieldPlus' assets fell from a peak of $13.5 billion in 2007 to $1.8 billion.
"All financial firms and professionals-including large mutual fund providers-must be vigilant in accurately describing the risks of the products they sell to the public, especially the widely held mutual funds that are bread-and-butter investments of retail investors," said Robert Khuzami, director of the SEC's division of enforcement.
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