Union Station Gets Dressed Up for the SEC

Apr 16, 2012

Union Station Gets a New Look

DC Metro riders passing through Union Station may notice the stop has a new look. Beginning today, the Chamber’s Center for Capital Markets Competitiveness is running an ad blitz, covering the station with questions about why regulators intend to revamp money market mutual funds when they work so well for American businesses, cities, and investors as a cash management tool.

With the station’s location next to the Securities and Exchange Commission (SEC), the right regulators will be confronted with important and unanswered questions about pending reforms.

Limiting Capital Options

The SEC already made significant changes to money market mutual fund regulation in 2010; since then, these funds have proven to be strong and resilient, capable of withstanding continued market turbulence. Despite that, regulators have voiced intentions to make further changes that threaten to destroy the utility and viability of money market mutual funds.  Requiring money market mutual funds to float the net asset value or imposing redemption restrictions on investors fundamentally alters the elements that make these funds an attractive and permitted investment.  If the suggested changes are implemented, many investors will reduce their investment or stop investing in money market mutual funds altogether.

The Stakes

Reduced investment in money market mutual funds also means less capital to purchase businesses’ and state and local governments’ short-term debt.  This consequence is big, as money market mutual funds hold over one-third of corporate commercial paper and 60% of municipal securities.  In essence, borrowing costs for businesses will skyrocket as the market for these securities dries up, a formidable challenge for businesses pursuing expansion and job growth.  Likewise, state and local governments will be forced to make increasingly more difficult budget decisions as their borrowing costs increase. 

As they say, cash is king.  And that certainly holds true for any business, organization, or governmental entity trying to manage their cash and operations efficiently and effectively.  Ensuring that money market mutual funds remain a viable and useful investment product is key to ensuring that our economic recovery continues on a sustainable path. 

Too Many Questions Remain

Before regulators embark on wholesale changes to money market mutual fund regulation, they need to ask themselves more questions:

  • Why will more regulation fundamentally change the structure and characteristics of money market mutual funds?  Have we identified the specific problem through empirical evidence to justify the changes? 
  • Why now?  Will the cumulative effect of this proposal along with Dodd-Frank mandated rules impair the capital markets so broadly that it will impair business’ ability to raise needed capital?
  • Why these solutions?  Do these changes address the perceived problem?  Do the benefits outweigh the risks?

There haven’t been satisfactory answers to these questions, but by getting in front of regulators in a highly visual way, we hope to force their attention to the many questions that remain.

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