Charles Schwab and Invesco jumped into the fray on money market funds, urging SEC chairman Mary Schapiro to fully consider the impact reforms will have on the market before pushing forward with her reforms.

Schwab Investment Management president Marie Chandoha wrote that she finds numerous aspects of the proposed regulations "troubling," asserting that "money market funds are one of, if not the, safest investment options in the market today," saying that, "If the regulatory goal is to eliminate all risk from the product, then the bar is set impossibly high."

She further recommended that the SEC's focus should be less on reducing risk and more on ensuring that money market funds maintain sufficient liquidity to handle a surge in withdrawal requests, as well as high-quality investment portfolios.

"We believe that reforms put in place by US regulators in 2010 have accomplished that -- and the volatile markets of the summer of 2011 served as a test for those new requirements, a test that US money market funds passed with flying colors," she added.

Meanwhile, Invesco's head of global cash management Lyman Missimer urged the SEC to thoroughly examine the effects of reforms on money market funds and the global financial system at large. He theorized that proposed reforms could cause a "widespread shift" of assets to less regulated vehicles and could "seriously jeopardize the fragile economic recovery."

"Given the central importance of money market funds to short term credit markets ... we believe it is critical for policymakers to recognize that disruption of these funds or a significant reduction in their asset base could have a severe destabilizing impact on issuers (including government issuers) and on the markets generally," he said.

Last Thursday, MFWire reported that Schapiro will be testifying before the Senate possibly on June 21. It pointed out that there is some dissuasion among the SEC's five commissioners regarding Schapiro's plans for a floating NAV, capital requirements for money funds and a slowed redemption period during runs.

That report came on the heels of a meeting between the SEC and BlackRock, Vanguard, J.P. Morgan Chase and Invesco to negotiate the proposed regulations.

With one of her proposals, Schapiro wants to stop investors from withdrawing all of their money from the funds at once, forcing investors to wait 30 days before getting back three to five percent of it.

The fund shops prefer instituting a charge on investors withdrawing their funds during a special event such as the 2008 financial crisis.

You can read all comments submitted regarding money market fund reform here. 

Edited by: Irene Park


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