SIFMA and Senator Toomey Criticize Proposed Money Market Fund Rules

SIFMA and the Asset Management Group of SIFMA raised numerous concerns regarding the SEC's proposed amendments to money market fund requirements under ICA Rule 2a-7. Separately, Senator Pat Toomey (R-PA), Ranking Member of the U.S. Senate Banking Committee, wrote a letter to SEC Chair Gary Gensler criticizing the SEC proposal.

As previously covered, the proposed amendments would, among other things, expand reporting and liquidity requirements applicable to money market funds in response to the significant redemptions they experienced at the start of the COVID-19 pandemic. In their comment letter, SIFMA and SIFMA AMG expressed concern over (i) provisions that would require funds to decide if financial intermediaries have the ability to redeem and sell shares at prices not in accordance with a stable price per share, and (ii) prohibitions targeting the use of reverse distribution mechanisms or similar tools to maintain a stable price per share in times of negative interest rates. In addition, the associations "strongly opposed" swing pricing mandates of any kind. In addressing these concerns, the letters recommended extensive changes to the proposed rule.

SIFMA and SIFMA AMG did express support, however, for (i) eliminating Rule 2a-7 redemption gates, (ii) revising the calculation of weighted average maturity and weighted average life maturity "based on the percentage of a security's market value in the portfolio" and (iii) the use of liquidity minimums that increase incrementally.

In his letter, Senator Toomey asserted the proposed rule changes would detract from retail investors' ability to earn a "higher return on investment," particularly during a period when the Senator said the money supply "must decrease to combat this inflation."