SEC Seeks to Prevent One Cause of Investor Runs During Financial Panics

[yankees60]

SEC Seeks to Prevent One Cause of Investor Runs During Financial Panics

In proposals concerning money-market funds, Chairman Gary Gensler cites ‘dash for cash’ at start of Covid-19 pandemic



https://www.wsj.com/articles/sec-floats ... 1639579017


One way the SEC proposes to fix the problem is by requiring some money-market funds to adopt policies and procedures to adjust their share prices by a “swing factor” on days when they have net redemptions. The factor would be determined by transaction costs and the market impact of selling a representative slice of the fund’s portfolio, rather than just the most-liquid assets.

The goal is to protect investors who remain in the fund from dilution by investors who redeem their shares, Mr. Gensler said.

“This is trying to align, in high-stress periods, the redemption price to the underlying value,” he said.

Asset managers say that updating a fund’s share price several times a day to account for redemption activity would be difficult or impossible. The opportunity to withdraw cash throughout the day is one of the reasons that institutional investors like money-market funds, and the industry and its lobbyists have characterized swing pricing as potentially catastrophic.

Other elements of the SEC’s proposal include increasing the share of money-market funds’ assets that are either cash equivalents or mature within one day to 25% from 10% and the share maturing in a week to 50% from 30%.

The agency is also proposing to scrap rules it implemented after the 2008 crisis that allowed money-market funds to impose fees or temporarily suspend redemptions when liquidity started to dry up. While the objective of that change was to reduce the funds’ susceptibility to runs, regulators and money managers now believe it simply encouraged investors to flee the funds when weekly-liquid assets approached the 30% level in March 2020.

The mutual-fund industry is a powerful lobby in Washington, and it has successfully derailed previous attempts by federal regulators to implement swing pricing or other aggressive rule changes to shore up money markets.

[whatchamacallit]

Thanks Vinny.

Looks like some good reasons to not use money market funds and hold as direct as you can.