Thursday, August 23, 2012

Lobbying pays off once more

This time it paid off for the money market funds.  The SEC chair, Mary Schapiro, wanted them to stop pretending they are as solid as banks.  The failure of Reserve Primary Fund in 2008 sparked a $300 billion run on money market funds which aggravated the financial conditions of that troublesome time.  Of course, we bailed them out then and everything is just fine without any new rules.

One of the new rules would require the funds to reflect the real world and stop pricing their shares at a stable $1 value. Another would require the funds to put aside an insurance buffer of capital that could be used to absorb losses.   A third would prevent investors from withdrawing their money immediately. 

The industry objected to any of the new rules.  The board of the SEC agreed with Fidelity etal.  It was a close vote, 3-2, with one Democrat voting with the Republican board members.  It so happens that the Democrat had previously served as general counsel, executive vice president and corporate secretary of the investment firm Invesco.  He felt that the SEC had not studied the issue enough, although discussions have been ongoing for two-and-a-half years.

No comments: