On April 11, 2022, the IIF responded to the SEC’s proposed rule: Money Market Reform (File No. S7-22-21). The IIF encourages the SEC to continue its active collaboration with global standard setters to develop and implement, to the extent feasible and appropriate, coordinated approaches to money market fund (MMF) reforms, the functioning of the short-term funding markets and the NBFI sector more broadly. The IIF response cautions against measures that would limit the important benefits of ease of redeemability, risk diversification and laddered maturity that are characteristics of many MMFs.
The IIF’s key concern with the SEC’s proposal is the proposed adoption of swing pricing. The IIF response expresses concern with swing pricing both because of its direct impacts on the markets and because it would introduce a relatively untested and unfamiliar mechanism into the markets with possible unintended consequences for funds and their investors.
The IIF is proposing an alternative to swing pricing that could be operationalized through a mechanism that is based both on a net redemptions trigger and either weekly liquid asset thresholds or the SEC’s N-CR liquidity event reporting thresholds. Under both variations, the following principles would be reflected:
- Objectivity, so that investors clearly understand how and when the fee would be imposed
- The use of a dual metric to prevent investors from tracking a single ‘bright line’ metric
- A gradated approach that increases the fee (ultimately to a maximum level) as the liquidity of the fund decreases
- Investors generally are more sensitive to gates than to fees
We believe that our alternative improves upon the swing pricing mechanism in the SEC’s proposed rule as it preserves same-day liquidity for investors and creates fewer operational issues for MMFs and fiduciaries, which ultimately benefits investors.
We support the SEC’s proposal regarding the removal of gates. We also favor an increase of the daily liquid asset threshold to 20%. We express concern with the proposed amendments related to potential negative interest rates as we do not believe that a certification requirement is an appropriate role for fund providers.
The IIF looks forward to an opportunity to discuss its response and its alternative to swing pricing with the staff of the SEC.