Schapiro's Leaving. Money Fund Reform Is Not.
December 3, 2012
For the better part of two years, Mary Schapiro told anyone who would listen that the federal government could not afford another bailout and that the money market mutual fund industry would have to backstop itself.
Even though the chairman of the Securities and Exchange Commission had already overseen a covey of changes in 2010 that were designed to improve the resiliency of such funds in times of stress, she never strayed from pursuit of much more fundamental reform. The most controversial and most opposed: Letting the stated value of a share in such funds float, every day. Let the stated value unequivocally equate to the net value of the underlying assets.
That, of course, would break the bedrock promise of money funds: A dollar in would always be worth a dollar out. A requisite if you wanted to compete with bank accounts for investors' savings.So in August, when she found she did not have the votes to force change of that magnitude, she folded her hand and walked away from the battle.
The fund industry applauded.
"We have strongly opposed the structural changes to money market funds under consideration at the SEC, because of the adverse consequences of these proposals for investors, issuers and the economy,'' said Paul Schott Stevens, chief executive of the Investment Company Institute, the primary defender of mutual funds of all types. "The exhaustive record before the Commission clearly does not support these changes. We are pleased with the recent announcement that the Commission will not be pursuing them further."
Now, she is walking away from the SEC altogether. A week ago today, she announced she would leave her post, altogether. The fund industry applauded, again.
"While we disagreed with Chairman Schapiro on some issues, we have immense respect for her commitment to public service and the interests of investors,'' Stevens said, this time around. "We wish Chairman Schapiro well in the future."
But that does not mean that reform of the money fund industry is now dead in its tracks. Instead, the timing of potential reform is insulated from Schapiro's departure.
That's because the money fund overhaul has now been taken over by the Financial Stability Oversight Council, headed by Treasury Secretary Timothy Geithner. And it says it isn't letting go, until it returns formal recommendations for reform of money funds to the SEC, which would be charged with making the rules needed to enact those recommendations and making those rules stick. The only thing that could change that outcome? The SEC taking up the cudgel, itself, first.
Here's the FSOC's timetable.
1.A 60-day public comment period began November 19, 2012, when the council's own proposed recommendations were published in the Federal Register.
2.Institutional investors, individual investors, fund industry executives and other parties have until January 28, 2013 to submit their own comments, analyses and recommendations.