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Schapiro Reiterates Call for Money Fund Reform

In a speech last Thursday, SEC Chairman Mary Schapiro reiterated her belief that additional money market fund reforms are needed.  She expressed her hope that the SEC will propose two serious options: floating the NAV or imposing capital requirements combined with limitations or fees on redemptions.

In her remarks, Schapiro emphasized her concern that investors treat money market funds like bank accounts and don't understand that they are investment vehicles whose value is not guaranteed.  She also specifically rebutted industry arguments that the 2010 reforms (imposing liquidity requirements on money funds) "did the trick."  She believes money funds continue to be susceptible to runs, pointing to the fact that fund sponsors sometimes waive fees or provide capital support to prevent funds from breaking the buck:

Without these capital infusions and other support, these funds might have broken the buck, kicking off other destabilizing runs. These numbers underscore the fact that the Reserve Primary Fund's collapse should not automatically be regarded as an isolated incident.

In addition, she stated that money funds remain particularly vulnerable to exogenous shocks, like a sovereign debt crisis or natural disaster.  Schapiro cited a 2010 Moody's study that identified nine financial incidents that kicked off multiple sponsor interventions in the U.S. and Europe.  These ranged from the Orange County default in the mid-90s to the California energy crisis in the early 2000s.