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Friday, February 02, 2018

Who Paralyzed the Anti Money Fund Reform Bill?

News summary by MFWire's editors

So much for bringing back the $1 NAV for money funds.

Despite winning bipartisan approval on its way out of committee and 64 co-sponsors from both sides of the aisle, the law that would partially roll back money fund reform seems to have stalled, the Wall Street Journal reports. Yet it could come back in modified form later this year, unnamed House aides tell the paper. In its current form, the bill would undo the 2014 SEC requirement that institutional prime money market mutual funds and institutional government money market mutual funds use floating NAVs.

The fight over the bill exposes differences between several large fund firms. Meanwhile, many fundsters at smaller firms may ignore the battle altogether given that money market funds are largely the province of only titans these days.

On one side of the fight is Federated Investors: a 53-year-old, Pittsburgh-based, publicly traded but family-controlled asset manager. Federated is a big fund firm with $397.57 billion in AUM as of December 31. Yet 66.71 percent of that AUM is in money market products and 46.67 percent is in money market mutual funds, so money funds are a core business for Federated. The bill in question, H.R. 2319 (the Consumer Financial Choice and Capital Markets Protection Act of 2017), is primarily the work of a local Congressman, Representative Keith Rothfus (R-Pennsylvania), whom the WSJ attacks as "fronting for Federated Investors." (The WSJ is not a fan of the bill, characterizing it as "the next money-fund bailout.")

Many local and state government officials and organizations have also lined up in favor of the bill, (more than 300, Rothfus says), complaining about how the post-money fund reform world has made it harder for municipal bonds when so much money shifted out of institutional prime and institutional government money funds thanks to the rule changes.

On the other side of the fight is the Investment Company Institute (ICI), which last month urged the House Committee on Financial Services not to pass the bill. In the letter, ICI chief Paul Schott Stevens writes that the "consensus of [the ICI's] member leadership is that reopening these reforms is not appropriate or desirable." The ICI's board of governors is a veritable who's who of fund firm chiefs from the largest mutual fund shops. The WSJ reports that BlackRock and Fidelity are among the "large fund managers" engaged in "behind-the-scenes" pushback against the bill.

"Opponents say the market has already adjusted to the 2014 requirement and are reluctant to force the SEC to revise it, worried about reopening a bruising fight over the funds' structure that could take years," the paper writes, adding that an ICI memo also discusses concerns that a rollback might lead the Financial Stability Oversight Council (FSOC) to take closer look at money funds.

For the biggest fund firms, money funds are a piece but not a core business, and perhaps the off chance of FSOC scrutiny makes continuing a decade-long money fund fight not seem to be worth it.

Meanwhile, Rothfus says he's not giving up the fight.

"I remain committed to addressing the negative consequences of the SEC's 2014 rule and I look forward to working with leadership on House Passage," Rothfus states, adding that the bill "continues to attract more co-sponsors and supporters from around the country."

Rothfus introduced the bill in May 2017, when it was promptly referred to the House Financial Services Committee (led by Representative Jeb Hensarling (R-Texas). The committee's Subcomittee on Capital Markets held a hearing in November, and after markup on January 17, 2018, the committee 34-21 in favor of the bill. According to the WSJ, five of those votes against the bill came from Republicans, including Representatives Bill Huizenga (Michigan) and Sean Duffy (Wisconsin).

Now, unnamed GOP aides tell the WSJ, the bill probably won't even come to the House floor (never mind pass the House) without changes. GovTrack, citing Skopos Labs, estimates that the bill now has a 27 percent chance of eventually becoming law. 

Edited by: Neil Anderson, Managing Editor

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