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Forum Files MMF Comment Letter

On September 16, the Forum submitted a letter responding to the SEC’s recent proposal to reform money market funds. While our letter expresses some skepticism that the Commission has adequately demonstrated that money market funds are the source of sufficient systemic risk as to warrant substantial restructuring, the letter nonetheless acknowledges the likelihood of Commission action, and thus comments on the Commission’s various approaches. 

In its proposal, the Commission suggests two alternatives – requiring many prime funds to adopt a floating NAV or requiring prime funds to charge liquidity fees and potentially impose gates when the liquid portion of the fund’s portfolio drops below a set percentage. We urge that if the Commission goes forward, it adopt both proposals, and give funds subject to the requirements the choice of which to comply with. We also note that, under the liquidity fees alternative, fund boards would have significant discretion in deciding to reduce or waive the fee or to instead impose a gate. In addressing this part of the proposal, we emphasize our firm conviction that fund directors are capable of making these determinations, but also emphasize that a board’s decision should not be second-guessed in hindsight, but should rather be protected, in all potential legal settings, by the business judgment rule.

To view the comment letter, click here