‘Shadow’ NAV
The proposal also called for funds to disclose their weekly liquidity on a daily basis and their per-share market value, or “shadow” net asset value, on a weekly basis with a five-day lag, the people said. Current rules force funds to disclose their shadow NAV monthly with a 60-day lag.
“FSOC should have allowed the SEC to consider other approaches that would strengthen rather than severely weaken money market mutual funds,” David Hirschmann, president and chief executive officer of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, said yesterday in a statement.
Luis Aguilar, a Democratic SEC commissioner, said in an interview he was optimistic that public comments generated in response to FSOC’s recommendations “will shed light into what is best for the public interest.” Aguilar’s decision to side with two Republican colleagues blocked Schapiro’s plan in August.
Comment Window
FSOC asked for public comment on its draft recommendations for 60 days. The recommendations may be altered to reflect that commentary before the panel, which also includes Schapiro and Federal Reserve Chairman Ben S. Bernanke, votes on a final set of recommendations.
Under Dodd-Frank, the SEC will have 90 days after final recommendations are published to adopt the ideas or explain in writing why it didn’t act.
Thousands of households and companies use money funds as a safe and liquid place to park cash. The funds invest in high- quality, short-term debt. They represent the largest collective purchaser of corporate and bank-issued debt in the U.S.
The debate over money funds began soon after the Sept. 16, 2008, collapse of the $62.5 billion Reserve Primary Fund. Its failure, because it owned debt issued by Lehman Brothers Holdings Inc., set off a run by money-fund investors that helped freeze global credit markets.
Bailout Restrictions
The panic abated only after the Treasury guaranteed shareholders against default for a year and the Fed began financing the purchase of fund holdings. The Treasury and Fed have since been restricted from repeating those bailouts.
A federal jury in Manhattan on Nov. 12 ruled that Bruce R. Bent, founder and chief executive officer of closely held Reserve Management Co., didn’t defraud clients in the fund. His son, Bruce Bent II, was found negligent on one claim of violating a securities law.
The SEC accused the Bents of fraud in May 2009 for allegedly engaging in a campaign to deceive investors into believing the fund was safe after Lehman declared bankruptcy on Sept. 15, 2008.
The SEC enacted new rules in 2010, creating liquidity minimums, imposing shorter ceilings on the average maturity of holdings, tightening credit standards and forcing the funds to disclose more information on holdings.
Schapiro called the changes a good start. Her staff worked for two additional years on a plan that was ready in August.
The industry, joined by the U.S. Chamber of Commerce, engaged in a months-long lobbying campaign to sway SEC commissioners, members of Congress and money fund investors and borrowers against the plan.
Aguilar and Republican commissioners Daniel M. Gallagher Jr. and Troy A. Paredes told Schapiro they wouldn’t support the plan. Schapiro then shelved the plan and appealed to FSOC to intervene.
Bloomberg News
