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Commissioner Gallagher Discusses Money Market Fund Reform

In a recent speech, SEC Commissioner Gallagher stated that the agency should consider holding off on further changes to regulations governing money market funds until they have a clearer understanding of the effects of the reforms implemented in 2010.  He states that the SEC has "already responded to the 2008 crisis by making significant changes to [money market fund regulations]" and that "without an adequate understanding of the current state of play, [the SEC is] handicapped in [its] effort to define existing risks and measure their magnitude."

While calling any rulemaking in the money market space "premature and possibly unnecessary," Commissioner Gallagher went on to give his thoughts on the proposals being discussed in the industry.  First, he expressed concerns over a capital buffer requirement because he believes the level of capital necessary to backstop the funds would "effectively end the industry."  However, he did express support for a stand-alone redemption fee (not tied to a capital requirement), noting that it "does not set up false expectations of capital protection, externalizes the costs of redemptions, and could be part of an orderly process to wind down funds when necessary."  Finally, he declined to take a position on floating the NAV of money market funds, stating that the proposal needs further study, including how it would affect the commercial paper market and bank deposits.